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Consumers expect further relief from the surging price of auto fuels as the government has room for additional excise duty cuts on petrol and diesel without impacting its budgeted revenue from the sector.


Sources said that the government has enough room to cut excise duty on petrol and diesel with an earlier ICICI Securities report suggesting that excise duty could be cut up to Rs 8.5 per litre without impacting the government's target for revenue from the tax on the two fuels this year. The estimate was based on cuts affected from April 1, 2021.

But with seven months of the year already over, higher levels of cuts could be made as increased collections have already been made in the past seven months o f FY22.

Government on Wednesday announced a Rs 5 per litre reduction in excise duty on petrol and Rs 10 cut in duty on diesel that would impact its revenue by around Rs 45,000 crore in the balance period of FY22. So, the average duty cut is around Rs 7.5 per litre (tax collections also depend on the quantum of sale of petrol and diesel).

Without any duty changes, the government was expected to collect over Rs 4.3 lakh crore from auto fuels. Now with duty cuts, this estimate may fall to a round Rs 3.80 lakh crore for FY22. This is still much higher than the budget estimate of Rs 3.2 lakh crore from excise collections by the Centre during the fiscal.

So, experts said that even if another round of similar level of excise duty cut is announced by the Centre, its budgeted revenue would remain on track while the move will provide further relief to consumers who have seen fuel prices rising by over Rs 26 per litre in 2021 alone.

Government sources, however, indicated that further duty cuts at this juncture would not be considered as revenue is required for several additional expenditure schemes including on Covid relief programmes and paying GST compensation to states. But if the global oil price spikes further, further cuts could be considered, sources said.

Together with states also announcing VAT duty cuts on petrol and diesel, consumers have got bigger relief on auto fuel prices across the country. However, even after the cuts, fuel remains at elevated levels with rates above Rs 100 per litre-mark in several parts of the country.

A Rs 5 per litre increase in fuel prices adds 0.5 per cent to inflation. Thus, any increase in petrol and diesel rates had a multiplier effect in raising rates for several other activities depressing the purchasing power of consumers.

"The much awaited duty cuts are welcome, but a lot more needs to be done considering projections that global oil may move up $100 a barrel soon. There is room for further reduction in oil sector duties," said an oil sector expert from one of the four big audit and accounting firms.

In FY21, contribution of the petroleum sector to the exchequer remained at over Rs 4 lakh crore. This is because excise duty was raised by Rs 13 and Rs 1 6 per litre on petrol and diesel between March 2020 and May 2020 and it rose to Rs 31.8 on diesel and Rs 32.9 per litre on petrol. It had come down a bit after duty cuts were announced now.

The increase in excise duty last year was to mop up gains arising from international crude oil prices falling to a two-decade low. In fact, a large portion of additional excise earnings was used for Covid relief measures announced by the government. But the thinking now is that with tax revenues both direct and indirect showing buoyancy with the economy fast on revival mode, some revision in duties can be made in the interest of the common man.