Petrol, diesel excise cut: Is fuel getting cheaper for you?

The government decided to slash excise duty on petrol and diesel due to volatile fuel rates. The Centre announced that petrol excise duty has been reduced to Rs 3 from the earlier Rs 13, and the excise duty on diesel is now zero from the earlier Rs 10. The changes came to force with immediate effect.

So, does this mean that petrol and diesel are getting cheaper for you – the consumer?

It is slightly more complicated than it appears. Surely, the Centre’s order is aimed at reducing the burden for consumers. But this cut has been offered to oil companies. It will get cheaper for consumers once the OMCs decide to pass on the benefits to the consumer. 

For now, whether petrol and diesel gets cheaper for you depends on when and if the OMCs pass on the benefits.

Additionally, a government official told Business Today that OMCs have been asked to not increase prices. 

The sudden slashing of excise duty will also result in around ~30-40 per cent of annualised losses, which the government will absorb, as mentioned by Madhavi Arora, Chief Economist at Emkay Global. This would translate to an annualised fiscal hit of  ~Rs 1.55 lakh crore for the government, she said.

Separately, rating agency ICRA said that the government may reduce excise duty rates on petrol and diesel to keep retail sale prices stable at existing levels. This would give companies more headroom to collect additional revenue to compensate for refining losses. 

Meanwhile, international oil prices touched $119 per barrel earlier this month before it pulled back to around $100 a barrel, due to the intensifying Iran war and the subsequent disruption in the Strait of Hormuz through which most of oil and gas pass.