Centre may cut excise duty on petrol, diesel to keep inflation under check

The government may bite the bullet and decide to cut excise duty once again on petrol and diesel in order to check the likely spike in prices of household items across the board due to a sharp rise in crude oil prices in the wake of worsening Russia-Ukraine crisis.

The crude oil prices have surged past $100 per barrel in the international market. Brent crude prices were at $102 per barrel in the international market on February 24. The crude mix shipped by India called the Indian basket came close to $94 per barrel.

Crude oil has a direct co-relation with India's retail price inflation as it jacks up the transport fuel prices, which in turn makes each and every item that is transported, costlier. The retail price inflation in January has already crossed the upper band of the Reserve Bank of India's target range of 2 per cent-6 per cent.

Despite crude oil prices firming up in the global market, the oil marketing companies have not increased petrol and diesel rates for the past 111 days in a row. With the current rise in Brent crude prices, the rates of diesel and petrol should have been higher by Rs 10 per litre, according to analysts.

There are chances that OMCs will increase the pump price of petrol and diesel once the Assembly elections are over.

Also read: Oil retreats, still above $100; no supply shocks for India

"If the government does not neutralise the hike by cutting central excise duty on petrol and diesel, the impact on price rise will be tremendous. Hence, there may be some action on duties," informed sources told DH.

The Centre had cut excise duty on the two fuels in October last year.

If the average price of the Indian basket of crude rises to $100 per barrel, inflation is likely to increase by up to 65 basis points, State Bank of India Group Chief Economic Advisor Soumya Kanti Ghosh said.

The macro-economic projections in the Union Budget for 2022-23 have been made keeping in mind that the crude oil will be around $75 per barrel but the prices have leapt since then.

According to estimates presented by economists of the State Bank of India, if the government reduces the excise duty on petroleum products and prevent the prices of petrol and diesel from rising, it will incur an excise duty loss of Rs 8,000 crore for a month.

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