The hike in excise duty will more or less take the price of the fuel to the same level when the crude oil had plummeted to the lowest level since the start of the first gulf war in 1991.
In a bid to benefit from the fall in crude oil prices, the government on Saturday hiked excise duty on petrol and diesel, a move that is likely to help the government generate more revenue during a tight fiscal situation. Special excise duty on petrol was hiked by Rs 2 to Rs 8 per litre in case of petrol and to Rs 4 in case of diesel, an official notification said. Additionally, road cess on petrol was raised by Rs 1 per liter each on petrol and diesel to Rs 10. Crude oil prices, on the other hand, fell further on Friday recording their worst weekly drop since 1991.
Although the expectation was that the falling crude oil prices will help trim petrol prices that are at Rs 69.87 per liter on Saturday in Delhi as compared to Rs 76.01 per liter on January 11. Diesel prices too have fallen significantly since the start of this year, now at Rs 62.58 per liter in Delhi from Rs 69.17 per liter during the second week of January. However, government sources requesting anonymity said that although the reduction crude oil prices has helped the consumers in the past few months, the move to increase excise duty is a measure to help the government generate resources for infrastructure development. “The government in a calibrated move has increased duty and cess on petrol and diesel as a measure of fiscal prudence and has ensured at the same time that the impact of this duty hike is not felt by the consumers while prices of petrol and diesel have been reduced further,” the source said.
Brent crude was down 67 cents on Friday at $32.55 a barrel, adding to the 7 per cent fall it recorded on Thursday. US West Texas Intermediate (WTI) crude was down 66 cents or 2.1 per cent at $30.84. Crude oil prices have been falling since the outbreak of Coronavirus in China caused the largest importer of crude oil to cut its demand, the slump was further nudged by the price war between Saudi Arabia and Russia.
Saudi Arabia, one of the biggest contributors to the Organisation of the Petroleum Exporting Countries (OPEC) has started a price war in the global crude market following a spat with Russia, a member of OPEC+ group on the issue of production cut amid slowing demand due coronavirus.