NEW DELHI: The Centre on Thursday sought to ease the pain of rising fuel prices by announcing the first excise duty cut on petrol and diesel since October last year.
Central excise duties were cut by Rs 1.5 per litre on both petrol and diesel, while oil marketing companies would absorb Rs 1 per litre in costs, resulting in a price cut of Rs 2.5 per litre.
Finance Minister Arun Jaitley asked states to cut taxes by an equal amount. Following this, BJP-ruled states like Gujarat and Maharashtra cut state taxes by Rs 2.5 per litre, bringing total relief to consumers to Rs 5 per litre.
The BJP-government had raised excise duties on petrol and diesel by Rs 11.77 and Rs 13.47 a litre, respectively, between November 2014 and January 2016 to shore up finances as global oil prices fell. But, it cut duties just once as crude prices began rising again, by Rs 2 per litre in October 2017.
Crude oil rates currently stand at $86 per barrel (brent), against just $55.80 on October 4, 2017, and Indian retail fuel rates have breached the Rs 90 per litre-mark in places like Mumbai.
Union Minister Nitin Gadkari referred to the crude oil situation as an ‘economic crisis’, noting that India needs to find import substitute products. “…we have great potential for the use of ethanol, methanol, CNG and electric transportation systems,” he said.
All the cuts will be effective from midnight, as clarified by Dr. Hasmukh Adhia, finance secretary.
The excise cut on petrol diesel announced by FM today will become effective from midnight of today. We urge States also to announce their cut in VAT with effect from 12 midnight today, if possible, so that the consumers get full benefit of reduction immediately.— Dr Hasmukh Adhia (@adhia03) October 4, 2018
The reduction follows petrol and diesel prices soaring to new highs.
In Delhi, where the fuel prices are the lowest among all metros and most state capitals, petrol was being sold at Rs 84 per litre and diesel at Rs 75.45 on Thursday morning.
Jaitley said the move followed Brent crude oil touching four-year high of USD 86 a barrel Wednesday and interest rates in US reaching seven-year high.
Inflation in India, however, is still moderate at less than 4 per cent and higher direct tax collections give comfort with regard to fiscal deficit, he said adding domestic macroeconomic indicators are strong and stable, except for current account deficit (CAD).
Experts like Dharmakirti Joshi, Chief Economist, CRISIL, welcomed the move but warned against further burdening oil marketing companies.
There is also the concern on whether the Rs 5 per litre relief would evaporate if crude prices continue to rise, and the rupee keeps falling. Analysts expect brent crude to hit $100 per barrel by early 2019, if oil producers are unable to meet the supply shortfall from US sanctions on Iran.
In which case, CARE Ratings’ chief economist Madan Sabnavis warns that the government will either have to choose to live with higher inflation or take a hit to fiscal deficit by bringing back subsidies”.
However, South Indian states such as Kerala, Karnataka and Andhra Pradesh say they can't cut their fuel taxes anytime soon.
(With inputs from PTI)