Government Hikes Excise Duty on Petrol and Diesel by Rs. 2/liter to Fund Infrastructure

Central government has increased excise duty on petrol and diesel by Rs.2 per liter. The revised hike will come into effect from the midnight of 1 and 2 January 2015. This is the third time government has increased excise duty on these fuels since November last.  Thankfully, common people will not bear the brunt of the proposed hike as retail rates of petrol and diesel will remain the same. Government is trying to generate revenues for building up infrastructure as it aims to utilize the money to construct roads across the country. Government wants to make full use of as oil prices are falling internationally and the revenues to the tune of Rs. 6000 crores realized in this manner will not stoke inflation.

Hike in excise will generate additional revenues without impacting inflation

International crude oil prices have been falling continuously for the last 6 months and they stand at a five year low at present. Major oil companies of the country decided against cutting down of petrol and diesel in their meeting yesterday even though oil prices have fallen internationally. This decision was taken in order to help government raise revenues for development work. Thus the benefit that should have gone to the consumers has been utilized by the government to pump money in its various infrastructure development schemes.

International crude oil prices are at their lowest in last 5 years

International oil prices are at their lowest since May 2009. These prices could have allowed reduction of Rs. 3.22 per liter in petrol and Rs. 3 per liter in diesel. This means that even with the proposed hike in excise duty, oil companies will pocket an additional Rs. 1 with the sale of every liter of petrol and diesel. Dharmendra Pradhan, who is the Oil Minister in the present government, tweeted, ‘’Government has decided to increase basic excise duty on petrol and diesel by Rs. 2/liter for infrastructure development especially building up of 15000 km of road.’’

International crude oil price stood at $53.53/bbl on 31 December 2014. This is less than half of the price of crude oil a year ago ($108.76/bbl). Industry experts were expecting an announcement of price reduction from the government but it has decided to make use of this money to fund infrastructure without any impact on the rate of inflation. This is a welcome move, many say, as governments of the past have had to subsidize petrol and diesel on account on increasing international prices, causing a drain on the national exchequer.

With the help of three hikes in excise duty on petrol and diesel since November last year, government plans to raise revenues to the tune of an additional Rs. 17000 crores that will help in containing fiscal deficit to a large extent. As the money realized in this fashion will go into building of roads, government hopes to give a boost to economic activities and also employment generation.