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Fuel Relief? Govt Slashes Excise Duty, But Price Dip Unlikely

Excise duty cuts on petrol and diesel may not lower prices for consumers.

Mar 27
3 min read
Fuel Relief? Govt Slashes Excise Duty, But Price Dip Unlikely

Top Summary

  • What happened: The government has slashed excise duties on petrol and diesel by Rs 10 per litre each.
  • Why it matters: The cuts aim to cushion Indian consumers from soaring global crude oil prices, but OMCs losses may absorb them.
  • What changes for people: Consumers may not see a significant price drop at fuel stations despite the excise duty reduction.
  • Who is affected: Oil marketing companies (OMCs), consumers, and the government's financial position.

Excise Duty Cut: A Breakdown

The government reduced excise duties on Friday to Rs 3 per litre for petrol and eliminated it for diesel.

However, industry sources suggest that the price cuts are unlikely to be passed on to consumers at the pump.

Oil marketing companies (OMCs) are expected to absorb the reduction to offset their significant losses.

OMCs Face Heavy Losses

OMCs are currently losing Rs 48.8 per litre on petrol and diesel sales.

This is largely due to the surge in Brent crude prices, which crossed the US$100 per barrel threshold after the US-Israel war on Iran and Strait of Hormuz blockade.

Minister Puri's Statement

Petroleum Minister Hardeep Singh Puri addressed the situation in a post on X.

 

"International crude prices have gone through the roof in the last month, from around US$70 per barrel to around US$122 per barrel. Consequently, petrol and diesel prices for consumers have gone up all over the world."

 

Puri noted price increases in other regions: 30-50% in Southeast Asia, 30% in North America, 20% in Europe, and 50% in Africa.

 

"The Modi government had two choices - either increase prices drastically for citizens of Bharat as all other nations have done or bear the brunt on its finances so that Indian citizen is insulated from international volatility."

 

 

"... in keeping with the commitment of last four years, since the conflict in Russia-Ukraine started, the govvernment decided to take a hit on its own finances again to safeguard the Indian citizen,"

Puri said.

 

Nayara Energy's Price Hike

A day before the excise duty cut, Nayara Energy, the largest private fuel retailer in India, increased petrol prices by Rs 5.3 per litre and diesel prices by Rs 3 per litre.

Impact of Geopolitical Tensions

The US-Israel war on Iran and the Strait of Hormuz blockade have disrupted global oil and gas supplies.

The Strait of Hormuz is a critical energy supply channel, handling approximately a fifth of global seaborne crude oil and gas before the conflict.

This translates to between 20 and 25 million barrels of crude and about 10 billion cubic feet of gas per day.

India's Energy Dependence

The Strait of Hormuz is a key supply route for India.

An estimated 40 to 50 per cent of India's crude oil imports, or between 2.2 and 2.8 million barrels per day, historically pass through this route.

India also imports a significant amount of liquified natural gas (LNG) from West Asia.

Around 16 to 17 per cent of LNG exported by Qatar and the United Arab Emirates is purchased by India.

What to Watch Next

Monitor global crude oil prices and geopolitical developments in West Asia. Track whether OMCs absorb the excise duty cuts or pass them on to consumers, influencing future fuel prices. Also keep an eye on any further government interventions to manage fuel prices and inflation.