Budget 2019: Petrol, Diesel Costlier After Excise Duty, Cess Hikes

Retail fuel in India will be dearer as the government increased levies on petrol and diesel to recover losses incurred in the last financial year.

The special additional excise duty and road and infrastructure cess will be increased by Re 1 each on every litre of petrol and diesel, Finance Minister Nirmala Sitharaman said in her maiden budget speech on Friday.

On Oct. 4, the government had lowered the excise duty by Rs 1.5 as it aimed to cushion consumers from rising crude oil prices and a weaker rupee. The fiscal implication of the fuel price cut was Rs 10,500 crore—only 0.05 percent of the fiscal deficit.

But as crude prices slumped and the rupee strengthened, the government increased its income on every litre of petrol and diesel by Rs 2. The average earnings of the government from sale of every litre of petrol and diesel now will be more than twofold and threefold, respectively, since it first came to power in 2014, data compiled by BloombergQuint showed. But that’s lower than what the government earned in 2016.

The hike in excise duty could limit oil marketing companies’ headroom for earning higher marketing margins—mark-up earned on sale of every litre of petrol and diesel. If oil marketers don’t raise prices, to adjust for the levy, it would negatively impact their gross marketing margins. Hindustan Petroleum Corporation Ltd. would be the worst hit as marketing is the biggest contributor to its overall operating income.

Reacting to the announcement, shares of Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., Hindustan Petroleum Corporation and Reliance Industries Ltd. closed 0.3-3 percent lower.