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Budget 2021: Why petrol, diesel prices won't increase despite new agri cess

Sumant Banerji     February 1, 2021


  • Agriculture infrastructure and development cess of Rs 2.5 per litre on petrol and Rs 4 litre levied on diesel
  • No change in price of fuels though as a commensurate cut in excise duty on the two fuels has been made
  • Prices of petrol and diesel are at all time highs with taxes accounting for 57-62 percent of the cost
  • Government has hiked excise duty on the two fuels by Rs 13-16 per litre since the last budget
  • Excise duty is the only revenue that has registered a growth for the government in 2020-21 at Rs 3.61 lakh crore

The government has imposed a steep agriculture infrastructure and development cess (AIDC) of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel but has cushioned it with a commensurate reduction in excise duty on the two fuels to not burden consumers. The AIDC is a new cess introduced by the government in the Union Budget 2021 -22 which was presented in the parliament on Monday, which seeks to shore up resources for improvement in agriculture infrastructure in the country.

"There is an immediate need to improve agricultural infrastructure so that we produce more, while also conserving and processing agricultural output efficiently. This will ensure enhanced remuneration for our farmers," Finance Minister Nirmala Sitharaman said during her budget speech. "To earmark resources for this purpose, I propose an Agriculture Infrastructure and Development Cess (AIDC) on a small number of items. However, while applying this cess, we have taken care not to put additional burden on consumers on most items.

Also read: Budget 2021: Agri cess of Rs 2.5 per litre on petrol, Rs 4 on diesel

To make up for the cess, basic excise duty on petrol has been revised to Rs 1.4 per litre from Rs 2.98 per litre and on diesel from Rs 4.83 per litre to Rs 1.8 per litre. Further, special excise duty has been brought down by Rs 1 per litre each on the two fuels to Rs 11 per litre on petrol and Rs 8 per litre on diesel.

Prices of the two fuels have risen to all time highs in the last fortnight thanks largely to a steep hike in taxation by the government in the last one year. Currently, a litre of petrol in Delhi costs Rs 86.30 per litre with excise duty which goes to the centre accounting for Rs 32.98 per litre and VAT, which goes to the state, accounting for another 19.92 per litre. Taxes account for 61.3 percent of the retail price of the fuel.

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On diesel, the central government pockets Rs 31.83 per litre as excise while state government gets Rs 11.22 per litre as VAT. In the overall price of Rs 76.48 per litre in Delhi, taxes account for 56.3 percent of the retail selling price. Since the presentation of budget last year, the government has increased excise duty on petrol by Rs 13 per litre and on diesel by Rs 16 per litre to exploit the crash in crude oil prices in May 2020 and generate revenues to offset shortfall in direct and indirect tax collections. It shows up in the fiscal report card for 2020-21. Excise duty revenues registered an over 35 percent jump in 2020-21 at Rs 3,61,000 crore against the budgeted estimate of Rs 2,67,000 crore. For 2021-22, the government has budgeted an excise revenue of Rs 3,35,000 crore, which represents an over 25 percent increase over 2020-21.   

Similarly, it has also bloated the government's exchequer by way of higher collection through the central road and infrastructure fund (CRIF) which is levied as a cess along with excise duty on petrol and diesel. The central government has estimated it would pocket Rs 2,31,132 crore in 2020-21 against its own budgetary estimate of Rs 1,26,076 crore, which represents a 83.3 percent jump. In 2019-20, the government had received Rs 90,252 crore under CRIF. For the next fiscal year 2021-22, the estimate is Rs 2,44,146 crore, 93.6 percent more than the budgetary estimate of 2020-21.

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