Govt cuts excise duty on petrol, diesel by Rs 2 a litre to counter inflation

An attendant lifts a petrol nozzle at a petrol pump in Siliguri.

The central government on Tuesday slashed excise duty on petrol and diesel by Rs 2 a litre to tame rising inflation and to shield consumers from the surging price of auto fuels.

The move is in response to criticism that increase in taxes on petrol and diesel, while global prices remained low, was pinching consumers. Fuel prices have started moving up owing to refinery shutdowns in the US following recent hurricanes.

On Monday, the petrol price in Delhi was Rs 70.83 per litre, its highest since 16 January; diesel cost Rs 59.07, also its highest since the same date.

The duty cut, which is effective from Wednesday, comes on the eve of the Reserve Bank of India’s monetary policy review and is likely to send a signal to the central bank that the government was doing its bit to control inflationary pressures.

“The revenue loss on account of these reductions in excise duty is about Rs 26,000 crore in a full year and about Rs 13,000 crore during the remaining part of the current financial year,” said a statement from the finance ministry.

Global oil price, which started falling since mid-2014 until its recent spike, enabled the government to boost revenue by raising excise duty on petrol and diesel several times to find resources for welfare spending, to cut oil subsidy and manage its fiscal deficit.

While fuel prices remained soft, this rise in duty did not pinch consumers, although they were denied the full benefit of soft global price.

Crude oil price, which had touched a monthly average of $123.6 a barrel in March 2012, eventually declined to $28.1 in January 2016. The Narendra Modi administration was able to take advantage of this fall in global price to decontrol the diesel price fully in October 2014.

In September 2017, the global crude oil price averaged $54.52, according to information available with the Petroleum Planning and Analysis Cell, an arm of the oil ministry.

The finance ministry attributed the current spike in domestic auto fuel prices to rising global prices and said the trend had started reflecting in inflation.

“This rise in prices of petrol and diesel has also reflected in wholesale price based inflation, which has increased to 3.24% for the month of August as compared to 1.88% for July,” said the ministry.

Consumer price index-based inflation accelerated for the second consecutive month, by 3.36% in August from 2.36% in July, as food inflation turned positive after three months of contraction.