First cut in 3 years: Petrol excise duty down by Rs 5/litre, diesel by Rs 10/litre

The price of petrol in the national capital was Rs 110 per litre on Wednesday while the price of diesel stood at Rs 98.4 per litre. With the cut in excise duty, petrol will cost Rs 105 per litre while diesel will cost Rs 88.4 per litre.

“The Government of India has taken a significant decision of reducing Central Excise Duty on Petrol & Diesel by Rs 5 and Rs 10 respectively from tomorrow. Prices of petrol & diesel will thus come down accordingly,” said a release by the finance ministry.

The change in excise duty since 2017.

A steady rise in crude oil prices and the elevated taxes — both central excise duty as well as state taxes — that have been in effect since May 2020 have played a key role in pushing the price of auto fuels over the pre-Covid retail price levels.

Between February and May last year, the government increased excise duties on petrol and diesel by Rs 13 per litre and Rs 16 per litre respectively amid a sharp decline in revenues due to the Covid-19 pandemic and related restrictions.

While the price of petrol rose by 46.4 per cent and that of diesel by about 45 per cent since January 2020, the price of crude oil has risen by only 20 per cent.

The government noted that the move to cut excise duty would come as a boost to farmers during the upcoming rabi season and urged states to “commensurately reduce VAT on petrol and diesel to give relief to consumers”.

The cut in excise duty is a climbdown from the government’s earlier position to not reduce the duties on fuel immediately, citing higher expenditure outlays. A senior finance ministry official had in September outlined a cut in excise duty on fuel as an unlikely measure.

The move now comes as the government gains cushion from the rise in Goods and Services Tax (GST) collections over the last few months and the high excise duty revenue collected so far.

GST collections in October (for sales in September) rose 23.7 per cent year-on-year to Rs 1,30,127 crore — the second highest revenue collection under GST ever since its rollout in July 2017. The government’s excise duty collections from petroleum products rose 33 per cent in the first six months of the current fiscal when compared with last year and is 79 per cent more than pre-Covid levels, official data showed.

Data available from the Controller General of Accounts (CGA) showed that excise duty collections, which come mainly from collections on fuels, surged to over Rs 1.71 lakh crore during April-September 2021 from Rs 1.28 lakh crore in the corresponding period last year and 79 per cent more than April-September 2019.

The government also said that the cut in excise duty will keep inflation low and boost consumption. “In recent months, crude oil prices have witnessed a global upsurge. Consequently, domestic prices of petrol and diesel had increased in recent weeks exerting inflationary pressure…the reduction in excise duty on petrol and diesel will also boost consumption and keep inflation low, thus helping the poor and middle classes. Today’s decision is expected to further spur the overall economic cycle,” it said.

The government had last cut excise duties in October 2018 when crude oil prices had reached $84 per barrel, pushing the price of petrol to Rs 84 per litre and the price of diesel to Rs 75.5 per litre in the national capital.