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The Rs 3 per litre increase in excise duty in petrol and diesel has brought both good and bad news for consumers. The good news is that there would not be any increase in retail selling price of the two petroleum products as a direct fallout of of excise duty hike. But the bad news is that consumers would not get the required gains of lower auto fuel prices on account of a slump in international oil prices.
Sources in the public sector oil marketing companies said that Saturday's retail price of petrol and diesel has fully factored in the Rs 3 hike in excise duty. Even after factoring in the higher cost, petrol prices fell 13 paisa per litre to Rs 69.87 a litre and diesel by 16 paisa to Rs 62.58 in Delhi on Saturday as part of daily revision scheme in practice for auto fuels.
While this means that oil firms have adjusted increased duty against the recent fall in oil prices and the likely trend in the near future of subdued prices, in effect it means that OMCs were reaping a premium on retail sale of petrol and diesel. This despite the market conditions demanding that price of the two products be reduced sharply, which analysts say by over Rs 4-5 per litre, in view of almost 25 per cent fall in global oil prices on Monday and crude falling by around 50 per cent since early January.
"There was a case for petrol and diesel prices to be lower by Rs 4-5 per litre over the current prevailing prices. However, as retail prices are adjusted by OMCs with a lag, and often the price is not a true reflection of international price of the product, gaps between real and prevailing price have enlarged," said an oil sector analyst.
Official sources agreed that with OMCs absorbing the excise duty hike, the retail price of petrol and diesel may not come down as sharply as expected on account of prevailing global developments.
This in turn means that even if, say, there is a need to bring down petrol and diesel prices by Rs 1 per litre, OMCs may actually reduce it by 50 paisa and use the balance gap to cover for its support to absorb excise duty hike.
"The current global development presented a special case to provide auto fuel consumers with substantially lower prices. This would have also supported economic activity and boosted consumption. But government seems more focused on filling its coffers impacted by a slowing economy even if it means taking retail inflation up again," said the analyst quoted earlier asking not to be named.
In June 2004 when crude prices were $ 34.16 a barrel, roughly the same level as now, the retail price of petrol stood at 35.71 a litre and diesel at Rs 22.74 a litre. At current global crude price of about $ 34 a barrel, the retail price of petrol remains at much higher levels Rs 69.87 a litre and diesel Rs 62.58 a litre.
Since 2014, excise duty on petrol and diesel has risen almost 11 times, the highest being the present Rs 3 a litre increase. Since then, excise duty has been cut by Rs 2 litre on both petrol and diesel only twice.
(Subhash Narayan can be contacted at firstname.lastname@example.org)