Govt to lose Rs 92,000 cr if it cuts excise duty on petrol, diesel to pre-pandemic level: ICRA

Synopsis: If the government reduces excise duty on petrol and diesel to pre-pandemic rates (March 2020) in view of the record high prevailing crude oil prices, it would entail a total revenue loss to the centre of Rs 92,000 crore next financial year (2022-23), rating agency ICRA has said

After the cut announced by the Modi government in November 2021, the central excise rates on petrol and diesel currently stand at Rs 27.9 per litre and Rs 21.8 per litre, respectively
A rollback in excise duties will come at a fiscal cost of around Rs 90,000 crore to the Government of India, said ICRA

New Delhi: If the government reduces excise duty on petrol and diesel to pre-pandemic rates (March 2020) in view of the record high prevailing crude oil prices, it would entail a total revenue loss to the centre of Rs 92,000 crore next financial year (2022-23), rating agency ICRA has said in a report on Friday. "In our assessment, a rollback in excise duties to pre-pandemic levels can prevent any major jump in pump prices, thereby softening the impact on the CPI inflation trajectory, albeit at a fiscal cost of around Rs 90,000 crore to the Government of India," said the report.

Excise duty on petrol, diesel

The monthly average retail selling price of Motor Spirit has been at Rs 102.9 per litre and that of High-Speed Diesel has been at Rs 90.5 per litre for the third consecutive month now, despite the steep rise in crude oil prices. After the cut announced by the Narendra Modi government in November 2021, the central excise rates on petrol and diesel currently stand at Rs 27.9 per litre and Rs 21.8 per litre, respectively. It is still higher than the pre-pandemic period of July 2019-March 2020 by Rs 8 per litre and Rs 6 per litre, respectively.

The Union Budget for 2022-23 had forecast the excise duty collections to contract by 15 percent to Rs 3.4 trillion, after a tepid 0.6 percent rise included in the revised estimate of 2021-22 (Rs 3.9 trillion), following the excise reduction undertaken in November 2021.

Surge in crude oil prices warrant a rise of Rs 6-8/litre in petrol, diesel prices

"If the Centre reinstates the excise duty on MS and HSD to the pre-pandemic rates, before April 1, 2022, followed by the budgeted rise of Rs 2 per litre each on unblended fuel in the second half of 2022-23, we estimate the revenue loss to the Centre in 2022-23 at Rs 0.9 trillion," ICRA said.

The report also added that it is difficult to pinpoint the exact amount of lagged revision in the retail selling price of petrol and diesel that is warranted by the surge in crude oil prices to the current levels but it is expected to be in a range of Rs 6-8 per litre, i.e. similar to the cushion offered by potential excise reversion to pre-Covid rates.

The Indian basket of crude surged past the US$100 per barrel mark on February 24 for the first time since 2014 on the back of intensifying geopolitical tensions between Russia, the world's third-largest oil producer, and Ukraine, as the former began an all-out invasion of the latter.

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ICRA