NEW DELHI: Excise duty cuts combined with VAT (value-added tax) reduction by states kept fuel inflation in check amid flaring oil prices, the Economic Survey said on Tuesday but did not raise hopes of immediate reduction in pump prices.
Inflation in the ‘fuel and power’ grouping in the WPI (wholesale price index) was mostly driven by high oil prices, prompting the government to respond by calibrating the excise duty on petrol and diesel, the government’s report card on the economy said.
In the first round, excise duty was cut on petrol by Rs 5 per litre and diesel by Rs 10 from November 4, 2021. In the second round, duty on petrol was slashed by Rs 8 per litre and diesel by Rs 6 from May 22, 2022.
Since then, petrol and diesel prices have not been raised by state-run fuel retailers who supply 90% of the market. This has led to heavy losses for the three main retailers in spite of the Centre giving a grant of Rs 22,000 crore to bridge losses from domestic LPG.
The moderation in pump prices helped keep input costs in check for farmers, transporters as well as industry, which ultimately prevented the cost of living from surging in tune with runaway global energy prices as it happened in the US, UK and Europe.
The two duty reductions also erased the duty hikes affected in 2020 when oil prices crashed below $20 as demand wilted after the Covid-19 pandemic shut down the world.
The ‘Indian Basket’ — or the mix of crude bought by Indian refiners — stayed in the range of $20-65 per barrel in 2020-21. “Thereafter, prices started surging on account of unprecedented cuts in crude oil supply by Opec and other oil-producing countries,” the Survey said.
The upward trend continued in FY22 and FY23 as demand picked up with the easing of Covid-19 restrictions in most regions of the world. The Indian Basket peaked at $116 per barrel owing to supply disruption amid rising tensions in eastern Europe and the Middle East in June 2022. Subsequently, the price declined to $78 per barrel in December 2022 and is currently hovering around $86.
Inflation in the ‘fuel and power’ grouping in the WPI (wholesale price index) was mostly driven by high oil prices, prompting the government to respond by calibrating the excise duty on petrol and diesel, the government’s report card on the economy said.
In the first round, excise duty was cut on petrol by Rs 5 per litre and diesel by Rs 10 from November 4, 2021. In the second round, duty on petrol was slashed by Rs 8 per litre and diesel by Rs 6 from May 22, 2022.
Since then, petrol and diesel prices have not been raised by state-run fuel retailers who supply 90% of the market. This has led to heavy losses for the three main retailers in spite of the Centre giving a grant of Rs 22,000 crore to bridge losses from domestic LPG.
The moderation in pump prices helped keep input costs in check for farmers, transporters as well as industry, which ultimately prevented the cost of living from surging in tune with runaway global energy prices as it happened in the US, UK and Europe.
The two duty reductions also erased the duty hikes affected in 2020 when oil prices crashed below $20 as demand wilted after the Covid-19 pandemic shut down the world.
The ‘Indian Basket’ — or the mix of crude bought by Indian refiners — stayed in the range of $20-65 per barrel in 2020-21. “Thereafter, prices started surging on account of unprecedented cuts in crude oil supply by Opec and other oil-producing countries,” the Survey said.
The upward trend continued in FY22 and FY23 as demand picked up with the easing of Covid-19 restrictions in most regions of the world. The Indian Basket peaked at $116 per barrel owing to supply disruption amid rising tensions in eastern Europe and the Middle East in June 2022. Subsequently, the price declined to $78 per barrel in December 2022 and is currently hovering around $86.
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