Govt Slashes Excise Duty on Petrol to ₹3 Per Litre, Exempts Diesel to Shield Consumers from Global Crude Price Rise

The government has slashed excise duty on petrol to ₹3 a litre and exempted diesel from the duty as it seeks to shield consumers from the impact of rising global crude prices amid the ongoing war in the Middle East.

Global crude prices have risen by almost 50% since the United States and Israel launched military strikes against Iran on February 28, triggering sweeping retaliation from Tehran.

In a notification issued late on March 26, the Finance Ministry cut excise duty to ₹3 a litre, from ₹13 a litre earlier, while the levy on diesel has been slashed to nil from ₹10 earlier. The duty cuts are effective immediately, the ministry said.

Despite the spike in international prices, retail pump rates have not been changed putting a strain on finances of oil companies.

To give relief to oil companies, the government has cut excise duty on petrol and diesel.

Tracking the excise duty cut notification, shares of fuel retailers IOC, BPCL and HPCL opened higher on BSE.

Rating agency ICRA, in a note on Thursday, had said if the average crude oil price goes up to $100-105/bbl, fuel retailers would incur a loss of ₹11 per litre on petrol and ₹14 per litre on diesel, respectively.

ICRA had also said that the government may reduce excise duty rates on petrol and diesel to keep retail sale prices stable at existing levels, giving oil companies more headroom to collect additional revenue to compensate for refining losses.

International oil prices touched $119 per barrel earlier this month on the intensifying Iran war, before pulling back to around $100 a barrel.

India imports 88% of its crude oil needs and roughly half of its natural gas requirement. These mostly come via the Strait of Hormuz.

Following the US and Israeli attacks on Iranian government, military and nuclear facilities, Iran warned shipping away from the strait, and insurers withdrew coverage, effectively halting tanker movements.

Nayara Energy, which operates 6,967 of India's 102,075 petrol pumps, has decided to pass on part of the increase in input costs to consumers and has raised petrol prices by ₹5/litre and diesel by ₹3/litre. Petrol at Nayara pumps now costs ₹100.71 a litre and diesel costs ₹91.31 per litre.

Jio-bp, the fuel retailing joint venture of Reliance Industries and BP Plc that owns 2,185 outlets, has, however, so far not raised prices despite incurring heavy losses on the sale of petrol and diesel.

State-owned fuel retailers, who control about 90% of the market, continue to keep rates frozen. A litre of normal petrol in Delhi continues to cost ₹94.77, while the same grade diesel comes for ₹87.67 a litre.