Excise Duty Cut on Petrol, Diesel to Cost the Govt ₹1.55 Trillion: Emkay Global

The government’s decision to cut excise duty on petrol and diesel by ₹10 per litre each could result in an annualised fiscal hit of about ₹1.55 trillion, according to Emkay Global Financial Services, while helping to absorb a significant portion of the losses incurred by oil marketing companies.

The move, announced on Friday, is aimed at cushioning the impact of the global energy shock triggered by war in West Asia. Following the revision, excise duty on petrol has been reduced to ₹3 per litre, while diesel will now attracts zero excise duty.

The decision comes amid rising concerns over a sustained surge in crude oil prices following US-Israel strikes on Iran and Tehran’s blockade of the Strait of Hormuz, a key global energy supply route. Prior to the conflict, nearly a fifth of global seaborne crude and gas — around 20-25 million barrels of crude and about 10 billion cubic feet of gas per day —passed through the narrow maritime channel. The disruption has pushed crude prices above $100 a barrel and heightened concerns over fuel price pressures in India, which remains dependent on imports.

Despite the duty cut, there may be no immediate reduction in retail fuel prices. The measure appears aimed at easing the financial pressure on oil marketing companies, which have been absorbing higher crude costs without passing them on to consumers. The excise duty cut reduction effectively shifts part of the burden from oil marketing companies to the government at a time when global oil market volatility remains elevated.

According to Madhavi Arora, Chief Economist at Emkay Global Financial Services, the ₹10 per litre cut in excise duty on petrol and diesel could allow the government to absorb around 30-40% of the annualised losses of oil marketing companies on auto fuels at current crude price levels.

The government has also revised the excise duty structure on aviation turbine fuel. The order specifies a special additional excise duty of ₹50 per litre on ATF, while exemptions in certain cases cap the effective rate at ₹29.5 per litre.