Petrol, diesel prices to fall? Centre may cut auto fuel taxes by Rs 5/litre, says BofA

By: |
February 25, 2021 1:45 AM

The brokerage firm has raised its RBI open market operations forecast by $9 billion to $48 billion, with oil imports driving up the current account deficit.

“We have retained our 9% FY22 growth forecast with the boost to consumption from oil tax cuts likely to offset impact of the pressure on yields from a higher fiscal deficit,” BofA added.“We have retained our 9% FY22 growth forecast with the boost to consumption from oil tax cuts likely to offset impact of the pressure on yields from a higher fiscal deficit,” BofA added.

The Centre may cut auto fuel taxes by Rs 5/litre to ease pressure on consumers as average price of global crude oil is seen to be around $60 per barrel, analysts at Bank of America (BofA) said.

“We have raised our FY22 Center’s fiscal deficit by 30 basis points to 7.5% of GDP, expecting `5/litre oil tax cut, BofA added. The Rs 5/litre tax cut can reduce Centre’s income by around Rs 71,760 crore.

The price of Indian basket of crude is currently at $62/barrel, up from $50/barrel in mid-December, supported by global demand recovery and voluntary production cuts from major oil exporting nations. Owing to lower demand, Indian basket of crude prices were in the range of $19-$44/barrel in the first half of FY21, when crude import bill fell 57% annually to $22.5 billion.

“We have retained our 9% FY22 growth forecast with the boost to consumption from oil tax cuts likely to offset impact of the pressure on yields from a higher fiscal deficit,” BofA added.

The brokerage firm has raised its RBI open market operations forecast by $9 billion to $48 billion, with oil imports driving up the current account deficit.

On Wednesday, retail petrol price in Delhi was at an all-time high of Rs 90.93/litre, rising by Rs 5.23/litre since the same day a month ago, as OMCs gradually increased the base-price of the products amid rising international crude prices. The Centre’s tax (basic excise, surcharge, agri-infra cess and road/infra cess) is currently Rs 31.83/litre for diesel and Rs 32.98/litre for petrol. In March and May, 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13/litre on petrol and Rs 16/litre on diesel.

To offset the effect of the newly imposed agriculture infrastructure cess on end consumers from February 1, the surcharge on both petrol and diesel rates have been reduced by only Rs 1/litre while basic excise duty rates now stand reduced at Rs 1.4/litre for petrol and Rs 1.8/litre for diesel. While the cesses and surcharge are not sharable, the states get 42% of the auto-fuel excise duty income only from the basic excise duty component. Of course, the states levy their own VAT on petrol and diesel, which goes exclusively to their coffers, but current high prices limit the scope of increasing VAT further.

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