New Delhi- Buckling under pressure, the government on Saturday cut excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6 per litre to give relief to consumers battering under high fuel prices that have also pushed inflation to a record high.
The excise duty cut will translate into a reduction of Rs 9.5 a litre on petrol in Delhi and Rs 7 a litre in diesel after taking into account its impact on other levies.
Petrol price in Delhi from Sunday, when the excise cuts become effective, will cost Rs 95.91 a litre as against Rs 105.41 a litre currently while diesel will cost Rs 89.67 a litre as opposed to Rs 96.67 now.
Announcing the duty cut through tweets, Finance Minister Nirmala Sitharaman also said the government will give Rs 200 per cylinder subsidy to poor who got cooking gas connection under the Ujjwala scheme, for 12 cylinders in a year to help ease some of the burden arising from cooking gas rates rising to record levels.
A 14.2-kg LPG cylinder costs Rs 1,003 in the national capital. Pradhan Mantri Ujjwala Yojana beneficiaries will get Rs 200 subsidy directly in their bank accounts and the effective price for them would be Rs 803 per 14.2-kg cylinder.
There was no subsidy paid on cooking gas since June 2020 and all users including Ujjwala beneficiaries bought cylinders at market rate, which currently is Rs 1,003 in Delhi.
The Rs 200 subsidy will cost the government Rs 6,100 crore, she said.
Alongside, she also said import duty on raw material for plastics and steel is being reduced to ease inflationary pressure.
The move came after the government’s inflation management was criticised by opposition parties and economists. A rise in price across all items from fuel to vegetables and cooking oil pushed WPI or wholesale price inflation to a record high of 15.08 per cent in April and retail inflation to a near eight-year high of 7.79 per cent.
High inflation prompted the Reserve Bank, which had been making a case with the government for excise duty cuts and easing import taxes on certain commodities to ease inflationary pressure, to hold an unscheduled meeting to raise the benchmark interest rate by 40 basis points to 4.40 per cent earlier this month.
State-owned fuel retailers will pass on the excise duty cut to consumers despite losing Rs 13.08 a litre on petrol and Rs 24.09 per litre on diesel because of holding rates despite surge in cost of raw material (crude oil).
The excise duty cuts along with Rs 5 cut on petrol and Rs 10 reduction on diesel effected from November 4, 2021, rolls back the Rs 13 per litre and Rs 16 per litre increase in taxes on petrol and diesel, respectively, effected between March 2020 and May 2020 to avoid passing on to consumers the sharp fall in international oil prices.
The excise duty hikes of 2020 had taken central taxes on petrol to their highest level of Rs 32.9 per litre and that on diesel to Rs 31.8 a litre.
After the latest excise cut, the incidence of central tax on petrol will come down to Rs 19.9 a litre and that on diesel to Rs 15.8 per litre.
“We are reducing the central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre. This will reduce the price of petrol by Rs 9.5 per litre and of diesel by Rs 7 per litre,” Sitharaman tweeted. “It will have a revenue implication of around Rs 1 lakh crore/year for the government.”
She exhorted all state governments to also cut local sales tax or VAT.
“I wish to exhort all state governments, especially the states where reduction wasn’t done during the last round (November 2021), to also implement a similar cut and give relief to the common man,” she said.
Post November 2021 reduction in excise duty on petrol by Rs 5 per litre and that on diesel by Rs 10 a litre, 25 states and UTs had cut VAT to give further reprieve to consumers battered by record-high retail prices. However, states ruled by non-NDA parties like Maharashtra, Andhra Pradesh, West Bengal, Kerala and Tamil Nadu had not reduced VAT.
Post that reduction, state-owned oil firms held petrol and diesel prices for a record 137-day period during which international oil prices rose from USD 84 per barrel to near 14-year high of USD 140. They finally broke the hiatus with a Rs 10 per litre increase on both petrol and diesel in 16 days starting March 22 but again hit a freeze button after the last revision on April 6 despite not covering all of the cost.
Holding of prices despite rise in cost had led to lower earnings of fuel retailers in the January-March quarter.
“Today, the world is passing through difficult times. Even as the world is recovering from Covid-19 pandemic, the Ukraine conflict has brought in supply chain problems and shortages of various goods. This is resulting in inflation & economic distress in a lot of countries,” Sitharaman said.
Welcoming the move, Oil Minister Hardeep Singh Puri said, “I want to highlight the fact despite this 2nd reduction in central excise, price of petrol & diesel in states like Maharashtra, Rajasthan, West Bengal, Tamil Nadu, Andhra Pradesh, Jharkhand & Kerala remain around Rs 10-15 higher than in BJP-ruled states.”
Rates differ from state to state depending on incidence of local taxes such as VAT. Andhra Pradesh has the highest VAT on petrol and diesel in the country, followed by Rajasthan and BJP-ruled Madhya Pradesh.
“This (high prices in non-BJP ruled states) is due to the refusal of their respective state governments to reduce VAT. It is time for these states to wake up & reduce VAT to provide relief to their consumers,” Puri said.
The Congress government in Rajasthan had cut VAT following the November 2021 decision. Punjab, which ruled by the party, had seen the biggest reduction then due to a cut in VAT rates.
“Even during the pandemic, our government set a paradigm of welfare, especially with PM Garib Kalyan Anna Yojana. This is now acknowledged and appreciated the world over,” Sitharaman said, referring to a scheme to provide free foodgrains to poor to help them tide over difficulties caused by a nationwide pandemic related lockdown.
“Despite the challenging international situation, we’ve ensured that there are no shortages/scarcity of essential goods. Even a few developed countries couldn’t escape some shortages/disruptions. We are committed to ensure that prices of essential items are kept under control,” she said.
The Finance Minister said despite rising fertilizer prices globally, the government has protected farmers from such price hikes.
“In addition to the fertilizer subsidy of Rs 1.05 lakh crore in the budget (for current fiscal), an additional amount of Rs 1.10 lakh crore is being provided to further cushion our farmers.”
She said the Prime Minister “has specifically asked all arms of the government to work with sensitivity and give relief to the common man,” she said adding the steps announced on Saturday were in line with that.
“We are also reducing the customs duty on raw materials & intermediaries for plastic products where our import dependence is high. This will result in reduction of cost of final products,” she said.
“Similarly we are calibrating customs duty on raw materials & intermediaries for iron & steel to reduce their prices. Import duty on some raw materials of steel will be reduced. Export duty on some steel products will be levied.”
“Measures are being taken up to improve the availability of #Cement and through better logistics to reduce the cost of cement,” she added.
Central excise duty makes up for 26 per cent of petrol and diesel price now. After considering local sales tax or VAT, the total tax incidence in the price is as high as 42 per cent.
The excise tax on petrol was Rs 9.48 per litre when the Modi government took office in 2014 and that on diesel was Rs 3.56 a litre.
The government had between November 2014 and January 2016 raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices.
In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped government’s excise mop up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.
It cut excise duty by Rs 2 in October 2017 and by Rs 1.50 a year later. But it raised excise duty by Rs 2 per litre in July 2019.
It again raised excise duty on March 14, 2020 by Rs 3 per litre each. The government on May 6, 2020, again raised excise duties by Rs 10 per litre on petrol and Rs 13 per litre on diesel.
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