If the government decides to reduce excise on gasoline and diesel, and crude remains near $100 per barrel, the government could face significant revenue losses.
“The average price of an Indian basket of crude oil has risen 33.5 percent to $84.67/bbl. in Jan’22 from $63.4/bbl. in Apr’21.” If the price of crude oil rises to $100/bbl from its current level, inflation is expected to rise by 52-65 basis points. Surprisingly, petrol and diesel prices have remained unchanged since November 21. Based on the current VAT structure and assuming a Brent crude price of $100-$110 per barrel, diesel and petrol prices should be higher by Rs 9-14 each as of now. However, if the government reduces the excise duty on petroleum products and prevents petrol and diesel prices from rising, the government will incur an excise duty loss of Rs 8000 crore for a month.
And, if we assume that the reduced excise duty will be maintained in the next fiscal year and that petrol and diesel consumption will increase by 8-10% in FY23, the government’s revenue loss for FY23 will range between Rs 95,000 and Rs 1 lakh crore, according to SBI’s latest report.
Petrol and diesel prices have not changed since November 2021. Based on the existing VAT structure and taking Brent crude price of $100-$110, diesel and petrol prices should have risen by Rs 9-14 each. If the government however reduces the excise duty on petroleum products and prevent the prices of petrol and diesel from rising, then the Government will incur excise duty loss of Rs 8000 crore for a month.
