Winning Bizness Desk
Mumbai.The Centre has reduced excise duty on petrol and diesel by Rs 10 per litre each in a move aimed at preventing any immediate spike in retail fuel prices. The duty on petrol has been brought down from Rs 13 per litre to Rs 3, while diesel excise duty has been cut from Rs 10 to zero. The decision comes at a time when global crude oil prices have surged sharply, putting pressure on oil marketing companies.
Global crude surge triggers pricing pressure on companies
The decision is linked to the sharp rise in crude oil prices in the international market, driven by tensions involving Iran, the United States and Israel. Crude prices have climbed from around 70 dollars to over 110 dollars per barrel. This surge has pushed oil companies into losses of up to Rs 30 per litre, raising fears that retail prices could have been increased to offset the burden.
Key decisions and immediate impact explained
- Excise duty cut by Rs 10 per litre on both fuels
- Petrol duty reduced to Rs 3 per litre
- Diesel duty brought down to zero
- Retail prices unlikely to fall immediately
- Move aimed at absorbing global price shock
Despite the tax cut, consumers are unlikely to see an immediate reduction of Rs 10 per litre at fuel stations. This is because retail prices are not directly set by the government but by companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum, based on crude prices and margins.
Companies absorb losses amid rising crude prices
Petroleum Minister Hardeep Singh Puri has indicated that oil companies are currently facing losses of around Rs 24 per litre on petrol and Rs 30 per litre on diesel. These losses have mounted due to the high cost of crude procurement amid West Asia tensions. Companies are expected to use the tax relief to stabilise their margins rather than reduce retail prices.
- Gross marketing margin determines earnings
- Includes cost of crude and refining expenses
- Excludes logistics, salaries and maintenance
- Profit remains after deducting all operational costs
The pricing structure is complex, influenced by global crude rates, the rupee-dollar exchange rate and taxation policies.
Private players, future prices and government revenue concerns
Among private players, Nayara Energy had already increased petrol prices by Rs 5 per litre and diesel by Rs 3 just a day before the government’s announcement. In Bhopal, its petrol price has reached Rs 111.72 per litre and diesel Rs 94.88. Reliance has not yet raised prices but may review rates depending on market conditions.
Future price movements will depend on global trends. If crude prices continue to rise or supply chains are disrupted, companies may eventually increase retail prices. Brent crude is currently trading above 110 dollars per barrel, indicating sustained pressure.
VAT cuts, under-recovery and why prices don’t fall easily
- States may face pressure to cut VAT
- Consumers may get Rs 2 to Rs 5 relief if VAT reduced
- Under-recovery mechanism affects pricing decisions
- Weak rupee increases import costs
- Old expensive stock impacts retail pricing
The excise duty cut will reduce central government revenue, but the move is intended to shield consumers from global shocks. However, a full benefit will only be seen if states also reduce VAT.
The issue of under-recovery explains why prices often do not fall when crude becomes cheaper. Companies absorb losses when prices rise suddenly, and later recover those losses when crude softens, instead of passing on the benefit. Additionally, governments may increase taxes during falling crude cycles, limiting relief to consumers.
