The finance ministry has postponed by a month the imposition of a proposed extra excise duty of Rs 2 per litre on petrol that is not blended with ethanol. Such an impost on diesel that is not mixed with bio-diesel has also been deferred by six months. The additional levy, proposed in the Budget for FY23, was to be applicable from October 1.
The latest move comes at a time when inflation remains uncomfortably high in the wake of the Ukraine war. Retail inflation inched up to 7% in August from 6.71% in the previous month. The decision will also give more time to oil firms to better prepare for its adoption and remove any supply bottlenecks of either ethanol or bio-diesel, which, in any case, is going to be a tall order, according to analysts.
In a notification, the revenue department said the additional excise duty on petrol will now be slapped from November 1 and that on diesel from April 2023.
The Budget decision to promote blending was meant to cut India’s oil imports proportionately and somewhat reduce pollution. The country imports about 85% of its annual oil requirements. The greater use of ethanol will also boost earnings of farmers who grow crops like sugarcane.
Currently about 10% ethanol is blended with 90% petrol. However, there is only an experimental mixing of bio-diesel–extracted from non-edible oilseeds—with diesel.
According to the latest notification, “petrol which is intended for retail sale, not so blended with ethanol or methanol” will attract Rs 3.40 per litre basic excise duty effective November 1, 2022, instead of the current Rs 1.40. Similarly, branded petrol that is not blending with ethanol will attract an excise duty of Rs 4.60 a litre, against the current Rs 2.60.
As for diesel that is “intended for retail sale, not so blended with alkyl esters of long chain fatty acids obtained from vegetal oils, commonly known as bio-diesels” will attract a basic excise duty of Rs 3.80 per litre, against Rs 1.80. Branded diesel will attract Rs 6.20 a litre basic excise levy, instead of the current Rs 4.20.
In addition to the basic excise duty, cess and special additional excise duty are also imposed on petrol and diesel. The total incidence of excise on petrol stands at Rs 19.90 a litre and that on diesel at Rs 15.80.
Analysts have said the blending move will be difficult to implement in states where ethanol isn’t produced in large volumes. Moreover, building infrastructure in states to manufacture bio-diesel in adequate quantity, they have said.
The government last year advanced the target by five years to achieve 20% ethanol blending with petrol to 2025. The blending of 10% was realised earlier this year.