The government would take a hit of about Rs 6,000 crore (Rs 60 billion) this year if it rolls back the excise duty of Rs 1.5 per litre on diesel it levied last week.
Under pressure from the Trinamool Congress, the finance ministry is evaluating its options for a possible reduction in the excise duty, without taking a major hit on its overall revenue collection.
Excise duty on diesel was levied to neutralise the loss the exchequer would have borne after an excise duty reduction of Rs 5.30 a litre on petrol, said a finance ministry official.
Officials said a roll-back of the rise in excise on diesel without revising the duty on petrol would lead to a loss of about Rs 6,000 in the remainder of this year.
The finance ministry is considering whether it can lower the excise duty. Officials said if collections from other taxation heads, as well as non-tax revenue, were in a comfortable range, a reduction might not pinch much.
The ministry expects to collect Rs 1.2 lakh crore from basic and special excise duties (excluding cess) on motor spirit and high-speed diesel oil this year.
Last year, it mopped up Rs 93,425 crore under that head, against a projection of about Rs 1 lakh crore. Collections were short of the target, as the government had done away with the basic excise duty of Rs 2.6 per litre on diesel.
The government fears its fiscal deficit target of 5.1 per cent of the gross domestic product for this financial year would be difficult to achieve, and any further slippage could add to woes.
Last week's increase in excise duty on diesel was aimed at removing distortions arising from the price differential between diesel and petrol. The government wants to discourage the use of diesel in passenger cars, as diesel isn't environment-friendly.
On Thursday, the Cabinet Committee on Political Affairs had approved an increase of Rs 5 (including Rs 1.5 excise duty) in diesel prices. It cut the excise duty on petrol by Rs 5.30 a litre to compensate oil marketing companies for losses on account of rising crude oil prices.
The government also capped the number of subsidised liquefied petroleum gas cylinders at six a customer, per year. This cap was today raised to nine a customer, a year in Congress-ruled states.
So far this financial year, the government's fuel subsidy bill has risen to about Rs 1,00,000 crore (Rs 1,000 billion), owing to high global prices and low retail rates.