The government also announced a Rs 200 subsidy on LPG for consumers who were given connection free of cost under Ujjwala programme, one of the Narendra Modi government’s flagship social welfare schemes launched in 2016.
The Centre will be foregoing Rs 1 lakh crore in tax revenue in the current financial year as a result of the excise duty cut. The subsidy for Ujjwala consumers will entail an expenditure of Rs 6,100 crore, finance minister Nirmala Sitharaman said while announcing the decisions.
This is the second duty cut by the Centre in a little more than six months and will bring down petrol price by Rs 9.50 per litre and diesel by more than Rs 7, depending upon the prevailing VAT rate in states, assuming the base rates remain the same.
The Centre had on November 4, 2021, reduced excise duty by Rs 5 on petrol and Rs 10 on diesel. The latest cut has brought down the excise duty to the pre-pandemic level – rather lower by a few paise. On March 1, 2020, excise duty stood at Rs 19.98 a litre on petrol and Rs 15.83 a litre on diesel. These will now be Rs 19.90 and Rs 15.80 a litre, respectively.
The latest cut comes after the Ukraine war resulted in a spike in global prices, which was passed on to consumers resulting in petrol prices crossing the Rs 100 a litre mark and cooking gas cylinders costing over Rs 1,000 in most parts of the country.
The reduction in pump prices will be slightly more in states with higher VAT such as Maharashtra, Rajasthan, Madhya Pradesh and West Bengal than those with lower tax rates. This is because the incremental decrease in state levy will be more in high-tax states as VAT is charged after excise duty, dealer commission and other charges.
In the last round, several BJP-ruled states had also reduced VAT on auto fuel, resulting in a sharper reduction in prices at pumps.
The reduction in Central tax to pre-Covid level takes away one of the Opposition’s main planks for criticising the government. It will mount pressure on states that did not reduce VAT to match the November 4 excise duty cut to do it this time.
After the excise reduction in November, BJP-ruled states had promptly cut VAT. AAP government in Delhi and Congress government in Punjab followed suit.
On Saturday, petroleum minister Hardeep Puri lost no time in saying that it was now the turn of the Opposition-run governments to do their bit to reduce petrol and diesel prices. “I want to highlight the fact (that) despite this second reduction in Central excise, price of petrol and diesel in states like Maharashtra, Rajasthan, West Bengal, Tamil Nadu, Andhra Pradesh, Jharkhand & Kerala remain around ₹10-15 higher than in BJP ruled states,” he tweeted.
Among the high-VAT states, Rajasthan, West Bengal, Assam, Meghalaya had Manipur had reduced VAT by varying degrees in February 2021 when petrol prices topped Rs 100 per litre ahead of state polls (except Rajasthan).
Government officials said the tax is being reduced by paring the cess component and will not impact states’ share of money from the tax collected from fuels. The excise duty collection is shared with states under the devolution process, cess is not.
The Centre had raised the excise duty by Rs 13 on petrol and Rs 16 on diesel between March and May 2020 when oil prices collapsed due to the pandemic. The high central and state taxes amplify the impact of elevated crude, which is currently hovering around $115 per barrel.