Petrol, diesel consumers should not worry on additional cess, say analysts; why it may be temporary pinch

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July 9, 2019 6:33 PM

Even as consumers feel the pinch due to the introduction of cess on petrol and diesel in the budget, analysts say the fuel prices are expected to soften going ahead.

Petrol price hiked by Rs 2.45, diesel by Rs 2.36 following tax hike in BudgetCess on petrol, diesel price is just a temporary pinch to the fuel consumers, say analysts

Even as consumers feel the pinch due to the introduction of cess on petrol and diesel in the budget, analysts say the fuel prices are expected to soften going ahead. The buyers would fell the pinch only in the short-term as the global crude oil rates may fall in the coming days, they added. The additional cess on fuel prices will also help in containing the fiscal deficit, the analysts added. Since October onwards, the international benchmark for crude oil prices, Brent has fallen to $62 per barrel. The Indian rupee has also appreciated to 69 per dollar from 74 per dollar, which augurs well for the crude oil prices. 

After the Finance Minister Nirmala Sitharaman announced additional special excise duty of Re 1 per litre and road and infrastructure cess of Re 1 per litre on petrol and diesel respectively, fuel prices went up by more than 2 all across the country.

“Crude prices have softened from their highs. This gives me a room to review excise duty and cess on petrol and diesel. I propose to increase Special Additional Excise duty and Road and Infrastructure Cess each by two rupees a litre on petrol and diesel,” Nirmala Sitharaman said while presenting budget on Friday in the Lok Sabha.

The cess on petrol and diesel prices have been raised in a bid to shore up government finances and keep the fiscal deficit within the target. Since crude oil prices are largely expected to stay in a relatively lower range, increase in cess might not have a sustained impact on consumers. Also, it might be rolled back if crude prices rally sharply in future, according to Amit Sajeja, Associate Vice President, Motilal Oswal.

“WTI Crude oil prices are largely expected to be confined to a range between $60-$53 for the next 3-4 weeks due to conflicting fundamentals. OPEC+ has decided to extend its supply cut till December, thus impacting supply adversely which is supportive for price. However, demand is getting impacted due to an economic growth slowdown in Europe & China. This is negative for prices,” Amit Sajeja of Motilal Oswal further told Financial Express Online. 

The crude oil prices are likely to remain benign on the back of increasing US production and global slowdown. Because of economic slowdown, there has been a decline in global crude oil prices by $20 dollar per barrel since September. The government raised the taxes on fuel prices due to these factors and the increase in taxes will help in controlling the fiscal deficit of the country. Only in short-term, the consumers will feel the pinch, as Ajay Kedia, Director, Kedia Commodities told Financial Express Only.  

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