Excise Duty Cut on Fuel: Impact on Prices, Revenue and Economy

Petrol-Diesel Duty Reduction Explained: Government’s Response to Rising Oil Prices

The Government of India has reduced excise duty on petrol and diesel to cushion the impact of rising global crude prices triggered by geopolitical tensions, ensuring price stability and relief for consumers.

Extent of Duty Reduction

The Centre has reduced the special additional excise duty by ₹10 per litre on both petrol and diesel. This move provides immediate relief to consumers and supports public sector oil companies such as Indian Oil Corporation, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited, which were facing significant under-recoveries due to elevated global prices.

Impact on Government Revenue

The duty reduction is expected to result in a major fiscal cost, with an estimated annual revenue loss of around ₹1.3 lakh crore. In the immediate term, the government may forgo over ₹7,000 crore. To offset part of this loss, additional measures such as export duties have been introduced, reflecting a calibrated fiscal approach.

Windfall Tax and Export Measures

To regulate profits arising from high international prices, export duties have been imposed on petroleum products. Diesel exports attract a duty of ₹21.5 per litre, while aviation turbine fuel (ATF) faces a levy of ₹29.5 per litre. These measures aim to ensure domestic availability and prevent excessive exports. The windfall tax is expected to generate short-term revenue and will be periodically reviewed.

Global Context and Policy Rationale

The surge in crude oil prices—from around $69 per barrel to over $111—has intensified inflationary pressures globally. As India depends heavily on imported crude oil, domestic prices are directly influenced by international trends. The government has positioned this decision as a consumer-centric intervention to stabilise prices, though it has also sparked political debate.

Exam-Focused Points

• Excise duty reduced by ₹10/litre on petrol and diesel

• Estimated revenue loss: ₹1.3 lakh crore annually

• Export duty: ₹21.5/litre (diesel), ₹29.5/litre (ATF)

• Windfall tax targets extraordinary profits from price spikes

• India is heavily dependent on crude oil imports