Finance ministry won't favour cut in fuel duty

New Delhi: Despite petrol and diesel prices reaching record high, finance ministry is not in favour of slashing excise duty on these products as it will hit the fiscal deficit target.

There has been growing demand to cut excise duty to provide some relief to the general public reeling under high fuel prices. 

Petrol price on Monday hit a 55-month high of Rs 74.50 a litre and diesel prices touched a record Rs 65.75 per litre.

However, finance ministry wants the states to cut VAT or sales tax on petrol and diesel. Petrol and diesel along with alcohol are currently out of GST ambit. 

The ministry believes that a reduction in excise duty, which makes up for a quarter of retail fuel price, is not advisable if the government is to stick to the path of reducing budgetary deficit.

“Excise duty cut would be a political call, but is not advisable if we have to stick to the fiscal deficit glide path outlined in Budget,” finance ministry officials said. 

They pointed out that every rupee cut of excise on fuel will result in a loss of Rs 13,000 crore to the government. “Fiscal considerations are far higher than one or two rupee price impact on consumers,” said officials. 

“One or two rupee increase doesn’t impact inflation,” they added. The government is also not in favour of tinkering with the autonomy given to oil PSUs to revise rates daily in line with the cost.  

“Once we have decided on daily price revision, it is not a good thing to tinker with that either through excise or by asking oil marketing companies to absorb prices,” the official said. 

They pointed out that oil ministry has also not yet officially asked for a cut in fuel excise duty.

In the Union Budget, Arun Jaitley set the fiscal deficit target at 3.3 per cent of the gross domestic product (GDP) in the current fiscal, from 3.5 per cent last fiscal.
Currently central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. State sales tax or VAT vary from state to state. In Delhi, VAT on petrol is Rs 15.84 and Rs 9.68 a litre on diesel.

Crude oil prices shot up 24 per cent in the first three months of 2018, and touched a 40-month high in April, owing to continuous decline in global inventories driven by production cuts by the Opec and geopolitical tensions.
Rating agency Crisil Research expects crude prices to average around $70 per barrel for calendar 2018, a 27 per cent rise on-year. India’s oil import bill too is expected to swell 26 per cent to Rs 650,000 crore this fiscal, said Crisil.