Excise cuts make fuel cheaper

New Delhi: Buckling under pressure, the government on Saturday cut excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6 per litre to give relief to consumers battering under high fuel prices that have also pushed inflation to a record high.

Announcing the duty cut through tweets, finance minister Nirmala Sitharaman also said the government will give Rs 200 per cylinder subsidy to poor who got cooking gas connection under the Ujjwala scheme, for 12 cylinders in a year to help ease some of the burden arising from cooking gas rates rising to record levels.

A 14.2-kg LPG cylinder costs Rs 1,003 in the national capital. Pradhan Mantri Ujjwala Yojana beneficiaries will get Rs 200 subsidy directly in their bank accounts.

There was no subsidy paid on cooking gas since June 2020 and all users including Ujjwala beneficiaries bought cylinders at market rate.

State-owned fuel retailers will pass on the excise duty cut to consumers despite losing Rs 13.08 a litre on petrol and Rs 24.09 per litre on diesel because of holding rates despite surge in cost of raw material (crude oil).

The excise duty cuts along with Rs 5 cut on petrol and Rs 10 reduction on diesel effected from November 4, 2021, rolls back the Rs 13 per litre and Rs 16 per litre increase in taxes on petrol and diesel, respectively, effected between March 2020 and May 2020 to avoid passing on to consumers the sharp fall in international oil prices.

The excise duty hikes of 2020 had taken central taxes on petrol to their highest level of Rs 32.9 per litre and that on diesel to Rs 31.8 a litre.
After the latest excise cut, the incidence of central tax on petrol will come down to Rs 19.9 a litre and that on diesel to Rs 15.8 per litre.

“We are reducing the central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre. This will reduce the price of petrol by Rs 9.5 per litre and of diesel by Rs 7 per litre,” Sitharaman tweeted. “It will have a revenue implication of around Rs 1 lakh crore/year for the government.”

She exhorted all state governments to also cut local sales tax or VAT.
“I wish to exhort all state governments, especially the states where reduction wasn't done during the last round (November 2021), to also implement a similar cut and give relief to the common man,” she said.

Post-November 2021 reduction in excise duty on petrol by Rs 5 per litre and that on diesel by Rs 10 a litre, 25 states and UTs had cut VAT to give further reprieve to consumers battered by record-high retail prices. However, states ruled by non-NDA parties like Maharashtra, Andhra Pradesh, West Bengal, Kerala and Tamil Nadu had not reduced VAT.

Post that reduction, state-owned oil firms held petrol and diesel prices for a record 137-day period during which international oil prices rose from USD 84 per barrel to near 14-year high of USD 140. They finally broke the hiatus with a Rs 10 per litre increase on both petrol and diesel in 16 days starting March 22 but again hit a freeze button after the last revision on April 6 despite not covering all of the cost.

Holding of prices despite rise in cost had led to lower earnings of fuel retailers in the January-March quarter.

“Today, the world is passing through difficult times. Even as the world is recovering from Covid-19 pandemic, the Ukraine conflict has brought in supply chain problems and shortages of various goods. This is resulting in inflation & economic distress in a lot of countries,” Sitharaman said.

Welcoming the move, Oil Minister Hardeep Singh Puri said, “I want to highlight the fact despite this 2nd reduction in central excise, price of petrol & diesel in states like Maha