Petrol, diesel prices may go up further to generate more funds to fight Covid-19

The Centre is reportedly planning to raise excise duty onpetrolanddiesel soon as Covid-19 pandemic continues to put pressure on revenue collection. According to reports the forthcoming hike could go up by as much as ₹6 per litre. It would help the government to generate additional revenue to the tune of almost ₹60,000 crore in a year.

The Centre wants that any duty hike on petrol and diesel should not result in an increase in the retail prices for two reasons. Firstly, because it will not be popular with the consumers, and secondly, the increase could have inflationary implications on the economy.

In March, the government had taken Parliamentary approval to raise special additional excise duty on petrol to ₹18 per litre and on diesel to ₹12 per litre but did not change the levy then. In May, it raised special additional excise to ₹12 on petrol and to ₹9 on diesel. This leaves the government with the space to increase excise duty on petrol by a further ₹6 per litre and on diesels by ₹3 per litre. This option is being examined now.

For consumers, any further increase in duty should not impact much as retail prices may be left unchanged or marginally increased as lower oil prices would allow for absorbing any increase in price.

However, a further increase intaxes on fuelwould make the product most taxed globally. The current taxes account for close to 70 per cent of the price of petrol and diesel. With any further increase in duty, this could reach 75-80 per cent level.

Higher retail price is not an option for the government at this juncture as it could push inflation.

With increased excise duty on petrol and diesel the government is already set to increase in oil revenue by close to ₹1.75 lakh crore this year. This is in addition to over ₹2 lakh crore it collects from petroleum products as annual excise revenue.

Centres fiscal situation is stretched this year due to Covid-19 related disruptions and additional commitments to states over GST compensation shortfall. The fiscal deficit is already estimated at a high of 8 per cent of GDP for FY21.

(With inputs from agencies)