India has slashed excise duties on petrol and diesel to protect consumers and curb a potential spike in inflation, while imposing windfall taxes on aviation fuel and diesel exports, amid volatile global oil markets due to the Iran war.
Global oil prices have surged past $100 per barrel after the near closure of the Strait of Hormuz, which serves as a conduit for 40 per cent of India’s crude oil imports, since the US and Israel first struck Iran on February 28.
In a government order late on Thursday, India’s finance ministry reduced the special excise duty on petrol to 3 rupees ($0.0318) per litre from 13 rupees. It also cut the duty on diesel to zero from 10 rupees per litre.
The move comes ahead of elections next month in four Indian states and one federal territory, with voters very sensitive to higher prices.
India will lose 70 billion rupees ($739 million) a fortnight from the excise cuts, although it will recover part of this – 15bn rupees – through separate export taxes on some fuel products, Vivek Chaturvedi, chairman of Central Board of Indirect Taxes and Customs, told a Press briefing.
The net hit to government finances will be 55 billion rupees per fortnight.
The yield on 10-year government bonds rose 7 basis points to 6.95 per cent, its highest level in 20 months on concerns that the government may struggle to meet its fiscal deficit target of 4.3pc of GDP for the financial year beginning April.
The tax cuts also ease the burden for oil marketing companies. While fuel prices in India are technically deregulated, state-run oil companies, which control 90pc of the retail network, do not always raise prices when crude climbs.
As a result, consumers are shielded from volatility, with either the government or the companies absorbing the increases.
“Government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies, approximately 24 rupees a litre for petrol and 30 rupees a litre for diesel, at this time of sky high international prices, are reduced,” Oil Minister Hardeep Singh Puri said in a post on X.
The government said that at current crude rates, the combined daily under-recoveries being absorbed by oil firms stand at 24 billion rupees.
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