Government May Reduce Excise Duty On Fuels

The government of India has plans to reduce the excise duty on petrol and diesel in order to curb inflation. After the decision of the government to import wheat from Russia to curb food inflation, the government is all onto this new step to spread the range of facing inflation and creating a bigger impact.

Introduction

In many parts of India, in the current times, the prices of petrol and diesel have been hovering over the mark of Rs 100 per litre. With the international price temporary rise and fall, uneven changes, the oil marketing companies, OMC were compensating for their losses.

The oil companies had incurred losses at a great amount when the prices of crude oil were high overseas, and therefore, the current high price points of petrol and diesel are explanatory that the government is allowing the listed companies, to recover the losses faced during price hike, in accordance to the statement made by Ranen Banerjee from Economic Advisory Services.

India's fuels demand continues to plummet as the monsoon season begins — Image source: The Financial Express

Inflation and excise duty on fuels

The current inflation rate stands at 7.44 per cent which also marks a 15 month high. 8. Earlier during the Covid times, government had increased the excise duty. Excise duty was cut the last time in may 2022 where it remained unchanged, it was the time when inflation was at 8 year high of 7.79 per cent high in April 2022. During that phase, government had step ahead and cut down the excise duty on petrol adn diesel by Rs 6 to Rs 8. Therefore, the government is expected to do so yet again.

To know more : https://asianatimes.com/oil-prices-in-india-continue-to-stay-high/

What impact will cutting of excise duty cause?

The cut in excise duty will help pool the retail inflation. And obvious enough, as the cut of duty is taken into action, the fuel prices will come down as well. Moreover, it will help pull down the logistics cost and help bring down the inflation.

As per the effect on government finances, the experts suggest that this could possibly create a pressure for India’s fiscal deficit target of 5.9 percent for FY 2024.

From the records of last year, a revenue loss of Rs 1 lakh crore was estimated, during the last time the excise duty was cut short.

However, on the Oil marketing companies, OMC like Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL), the impact for the listed companies is expected to be negative.

It is considered to be negative because they will be passing on the effect to the users.

Even during the last cut of excise duty, the OMCs had to bear a significant amount of inventory loss.

Moving on to the City gas distribution companies, it is expected to be negative as well, as the petrol and diesel will get significantly cheaper. Although, the gas prices continue to stay high.