Government may not cut excise duty on petrol and diesel in the near term if it accepts the suggestion made in the approach paper, submitted by the Chief Economic Adviser (CEA) Arvind Subramanian last month, to the Finance Ministry for maintaining status quo when oil prices can climb by another $ 15 a barrel. CEA has suggested status quo on excise duties till oil prices climb to $ 65 per barrel, from the present $ 49 levels.
CEA stated in the approach paper, any rise in prices above $ 65 a barrel should be equally borne by the consumers and the government, consumers by way of paying higher retail rates and the government by cutting excise duty on the two auto fuels. If crude oil price were to average $ 65 a barrel from July to end of the year, half of the burden on the fiscal would be Rs 46,000 crore, or 0.3 per cent of GDP. Further he added that, every incremental $ 5 per barrel increase in global oil prices would translate into Rs 2-2.1 per litre increase in retail prices if the 50:50 burden sharing mechanism is followed.
India is dependent on imports to meet 80 per cent of its oil needs, it spent $ 63.96 billion on crude oil import in 2015-16, about half of $ 112.7 billion outgo in the previous fiscal. For the current fiscal, the import bill has been pegged at $ 66 billion at an average import price of $ 48 per barrel. Every rupee per litre increase in petrol price leads to 0.02 per cent rise in Wholesale Price Index (WPI) inflation and 0.07 per cent for the same amount of increase in diesel rates.