The government may surprise consumers with a sharp cut in excise duty on petrol and diesel to tame rising prices of auto fuels that have already reached historic high levels.
Sources privy to the development said the duty cut may be as high as Rs 8 per litre on the two fuels so that consumers are provided immediate relief.
Petrol and diesel prices reached all time high levels last month and since then have been touching new highs every day. In the month of February itself, the pump prices of the two auto fuels have increased 14 times taking up petrol prices by Rs 4.22 per litre to Rs 91.17 a litre and diesel by Rs 4.34 a litre to Rs 81.47 a litre in Delhi.
“The revenue projection from the oil sector for FY22 gives the government room to cut excise duty on petrol and diesel sharply to provide immediate relief to consumers. This is being examined and a call may be taken soon,” said a government official privy to the development.
According to a report prepared by ICICI Securities, excise duty on auto fuels is estimated at Rs 4.35 lakh crore in FY22, if there is no cut in excise duty on the two products as against the budget estimate of Rs 3.2 lakh crore.
“Thus, even if excise duty is cut by Rs 8.5 per litre on or before April 1, the FY22 budget estimate can be met. We are optimistic of excise duty cut given demand recovery, impending privatisation and inflation concerns but expect it to be more modest than Rs 8.5 per litre,” the brokerage firm said in its report.
Government officials agreed that there is room to cut duty but its quantum may be decided later this month ahead of the start of new financial year.
In view of the economic disruption caused by the pandemic and need to raise resources to meet additional expenditure needs for relief measures, the Centre had raised excise duty on petrol and diesel by Rs 13 and Rs 16 per litre respectively March 2020 and May 2020. This measure itself would have mobilised an additional Rs 2,25,000 crore revenue for the Centre in FY21.
With a pick up in demand in various industrial sectors including consumption of fuels, the expectation is that revenue would balance out even if there is a duty cut. However, sources said that government would weigh the decision to cut excise duty against additional expenses that it may require to towards another dose of stimulus measure in FY22 and also the need to meet GST compensation shortfall for states.