The government is likely to incur a net revenue loss of about Rs 5,500 crore every fortnight following the excise duty cut on petrol and diesel, according to estimates by the Central Board of Indirect Taxes and Customs (CBIC).
On Friday, the Centre slashed excise duties on petrol and diesel by Rs 10 per litre each, bringing them down to Rs 3 per litre on petrol and nil on diesel. At the same time, it imposed export duties of Rs 21.5 per litre on diesel and Rs 29.5 per litre on aviation turbine fuel (ATF) to curb outbound shipments and prioritise domestic supply.
Vivek Chaturvedi, Chairman of CBIC, said the excise duty reduction would result in a revenue loss of around Rs 7,000 crore per fortnight, while export duties on diesel and ATF are expected to generate about Rs 1,500 crore. The government will review these duties every 15 days.
Finance Minister Nirmala Sitharaman said the government is “on its toes” to step up non-tax revenue collections to maintain fiscal stability. “Going forward, we will continue to ramp up efforts to mobilise additional non-tax revenues, and the government will remain on its toes to carefully manage the country’s fiscal position,” she said.
Economists estimate the total annual revenue impact could up to Rs 1 lakh crore. Gaura Sen Gupta, Chief Economist at IDFC First Bank, said the excise duty cut could lead to a revenue loss of Rs 1.8 lakh crore over 12 months, while higher export taxes may yield about Rs 80,000 crore, implying a net revenue foregone of around Rs 1 lakh crore annually.
Economists cautioned that the impact could spill over to the broader economy. After factoring in the excise cuts and windfall taxes, losses of oil marketing companies (OMCs) are expected to moderate to about ₹2.8 lakh crore annually, according to Emkay Global. Even so, part of the burden may eventually be passed on to consumers.
“The burden-sharing will likely cushion consumers to some extent, with OMCs absorbing the first leg, followed by the government. The greater the share of the oil shock absorbed by the authorities or OMCs, the smaller the pass-through to retail CPI inflation,” said Madhavi Arora, Chief Economist at Emkay Global.
However, the government has maintained that retail prices of petrol and diesel will remain unchanged for now. According to the finance ministry, the measures are aimed at ensuring oil marketing companies continue procurement smoothly and maintain uninterrupted domestic supply.