Excise duty cut may not lower fuel prices due to OMC losses
The Government of India has reduced excise duty on petrol and diesel by Rs. 10 per litre each, significantly lowering the central tax component on both fuels. Following the revision, excise duty on petrol now stands at Rs. 3 per litre, while diesel has effectively been brought down to zero.
Despite the substantial cut, the move may not immediately ease fuel prices for consumers. Industry sources indicate that oil marketing companies (OMCs) are likely to retain the benefit of the tax reduction to offset ongoing losses, rather than pass it on at the pump.
OMCs are currently facing heavy under-recoveries on fuel sales, estimated at nearly Rs. 48.8 per litre. These losses are largely attributed to the sharp rise in global crude oil prices, with Brent crude crossing the $100 per barrel mark in recent weeks.
The surge in crude prices has been linked to escalating geopolitical tensions in the Middle East, which have disrupted supply routes and pushed global energy markets into volatility. As a result, fuel prices have increased across several regions worldwide, including Asia, North America, Europe and Africa.
Government officials have indicated that the decision to cut excise duty was aimed at cushioning domestic consumers from global price shocks. Instead of passing on the full impact of rising crude prices, the Centre has chosen to absorb part of the burden through reduced tax revenues.
The development follows recent price hikes by private fuel retailers, with Nayara Energy increasing petrol and diesel prices by Rs. 5.3 and Rs. 3 per litre, respectively.