No change in retail prices as oil marketing firms to absorb increase.
Taking a cue from states, the Centre announced one of the steepest hikes in duties on petrol and diesel in the recent past, by raising it by Rs 10 and Rs 13 per litre, respectively, in a notification issued late on Tuesday.
Retail prices, however, will see no change as the price hike will be absorbed by oil marketing companies against the fall in crude prices.
Road and infrastructure cess was hiked by Rs 8 for petrol and diesel and the special additional excise duty (SAED) was hiked by Rs 2 per litre and Rs 5 per litre, respectively.
While the road cess will only go into the Centre’s coffers, the hike on account of SAED will be passed on to states via devolution at 42 per cent.
Hence, the states will get only Rs 0.84 per litre in case of petrol and Rs 2.1 in case of diesel.
The decision comes after several states increased the value added tax (VAT) on petrol and diesel making use of the lower price regime.
The Delhi government on Tuesday increased VAT on petrol and diesel to 30 per cent each, from 27 and 16.75, respectively.
As a result, the price of petrol in Delhi increased by Rs 1.67 to Rs 71.26 a litre and diesel by Rs 7.10 to Rs 69.29 in Delhi on Tuesday.
Amid falling international crude oil prices, the Centre introduced an enabling provision in March to raise excise duty on petrol and diesel by Rs 8 per litre in the Finance Act.
The government had on March 14 raised excise duty on petrol and diesel by ?3 per litre each, which was to help raise an additional ?39,000 crore in revenue annually.
This duty hike included Rs 2 a litre increase in SAED and Rs 1 in road and infrastructure cess.
It raised SAED to Rs 10 for petrol and Rs 4 for diesel.
The limit has now been increased to Rs 18 a litre in case of petrol and Rs 12 in case of diesel by way of amendment of the Eighth Schedule of the Finance Act.
Economists said the move would impact retail inflation by over half a percentage point at least.
“With lower consumption, there was loss of revenue for Centre and states, who earn Rs 6 trillion annually or Rs 50,000 crore monthly from fuel.
"Amid lockdown in April, the collection must have come down to just Rs 5,000 crore, and this will hold for May.
"This means that Centre and states have lost 20 per cent of annual revenue from fuel. Hence, they have hiked duties to recover losses,” said Madan Sabnavis, chief economist, CARE Ratings.
He added that the hike will impact inflation by at least 0.6-0.7 percentage points.
According to industry experts, an estimate of the additional government revenue cannot be made as the consumption of petrol and diesel has dropped to 40 per cent of what it was before the lockdown.
The duty hike comes following a drop in international crude oil prices in April, owing to lower consumption figures globally.
At 11.50 pm on Tuesday, Brent was priced at $30.67 a barrel, while West Texas Intermediate (WTI) crude was seen at $24.36 a barrel.
On Monday, the Indian basket of crude oil was priced at $23.38 a barrel, after touching a 15-year low last month.