The Government on Wednesday finally bit the bullet on runaway fuel prices and slashed excise duties on petrol and diesel by ₹5 and ₹10 per litre respectively, citing the need to help farmers for the rabi crop, ease inflation and give the economy a consumption boost.
Following the Centre’s excise duty cuts, most BJP-ruled States followed suit by cutting their fuel taxes, ostensibly with an eye on bringing fuel rates below ₹100 a litre. Gujarat, Karnataka, Assam and Tripura, among others, promised a ₹7 per litre cut in State levies for both diesel and petrol, while Uttar Pradesh announced a tax cut of ₹7 per litre on petrol and ₹2 per litre on diesel. Goa Chief Minister Pramod Sawant said the prices of petrol and diesel would be reduced by ₹12 and ₹17 per litre respectively.
While pump level prices are expected to cool off effective Thursday, they are likely to remain close to or above the ₹100 a litre mark for petrol in most places. The Centre has urged the States to ‘commensurately reduce’ the Value Added Tax (VAT) on petrol and diesel to give relief to consumers.
Even if the States don’t act, the actual amount of VAT levied by them on fuels is expected to reduce immediately because they levy varying tax rates on an ad-valorem basis, or simply put, as a percentage of the fuel price after central excise duties are levied.
Oil industry officials said the estimated price for petrol would reduce from ₹110.04 to ₹103.97 a litre in the capital from Thursday, from ₹115.85 a litre to ₹109.98 in Mumbai, from ₹106.66 to ₹101.40 per litre in Chennai and from ₹110.49 to ₹104.67 in Kolkata. Similarly, diesel prices are likely to soften between ₹11 and ₹12.50 a litre in the four metropolitan cities.
The Centre had been levying excise duties and cess of ₹32.90 per litre on petrol and ₹31.80 per litre on diesel. For context, the central excise duty on diesel was ₹3.56 per litre in 2014.
The Reserve Bank of India has been mooting fuel tax cuts since February this year in a bid to cool down persistently high inflation and Finance Minister Nirmala Sitharaman had defended the high taxation saying there is no assurance that the States would cut duties if the Centre did so and called for a co-ordinated approach.
On Wednesday, the Finance Ministry said the reduction in excise duty on petrol and diesel ‘on the eve of Diwali’ would boost consumption and keep the inflation low, helping the poor and middle classes.
With petrol and diesel prices scaling record highs every other day, the Government had recently blamed the need to service oil bonds issued by the UPA Government to rein in high prices during its tenure. In the past few weeks, it has also argued that the petroleum taxes are helping fund the COVID-19 vaccination drive and other welfare measures.
Opposition slams move
The Opposition criticised the move as being too little, too late and being nudged by electoral pressures. Trinamool Congress’ Derek O’ Brien termed it a ‘stunt’ after causing ‘months of hardship and pain to millions’.
“Happy Diwali for Government of India. Last year, excise duty on petrol increased by 65% but now decreased by 15%. Between April and September, Government’s collection from excise on petrol rose 33% compared to last year. Collection of excise is 79% more than pre-Covid levels,” he said in a tweet.
“In 2021, price of petrol was hiked by ₹28 & Diesel by ₹26/litre. After losing 14 by-elections & two Lok Sabha seats, reducing Petrol-Diesel price by ₹5 & ₹10 is tom-tommed as ‘Diwali Gift’ of Modi Ji!,” tweeted Congress leader Randeep Singh Surjewala.
He said the Narendra Modi Government should reduce prices to 2014 level and not undertake cosmetic measures.
In a statement, the Finance Ministry said, “In recent months, crude prices have witnessed a global upsurge. Consequently, domestic prices of petrol and diesel had increased in recent weeks exerting inflationary pressure. The world has also seen shortages and increased prices of all forms of energy.”
The average crude oil price for the Indian basket of consumption had hardened to an average of $82.11 a barrel in October, and global financial major Goldman Sachs expects Brent crude oil prices to firm up further from $83.72 a barrel on Wednesday to $110 a barrel.
“This reduction will not only cut the fuel prices directly for the consumers but also assist in reduction of costs through the supply chain, on costs of inputs and logistics, for instance, as the excise duty is a non creditable cost for businesses too,” said Mahesh Jaising, partner at Deloitte India, referring to petroleum products being out of the GST net.
At the last GST Council meeting in September, the Government had taken note of a Kerala High Court order asking for the inclusion of petroleum products under the GST net to be considered. However, the Council had reached a consensus that this was not the appropriate time to do so.
Emphasising that the excise duty on diesel had been lowered by twice the amount as petrol, the Ministry said this would particularly help farmers in the upcoming rabi season. “The farmers have, through their hard work, kept the economic growth momentum going even during the lockdown phase ...,” it noted.