Mumbai: Domestic petrol and diesel prices are lagging by up to Rs 8 per litre in the absence of any hike in the prices to reflect the changes globally, since the announcement of state elections in December last year, domestic rating agency ICRA said in a report Friday.
The estimated lag of Rs 6-8 per litre in the selling prices of the fuels, whose prices are officially decontrolled, is the same as the incremental excise duty being paid by customers since the hikes during the pandemic to take care of government revenues amid a sharp slide in crude, it said.
“While it is difficult to pinpoint the exact amount of lagged revision in RSPs (retail selling prices) of MS (motor spirit) and HSD (high speed diesel) that is warranted by the surge in crude oil prices to the current levels, we expect it to be in a range of Rs 6-8/litre, i.E. Similar to the cushion offered by potential excise reversion to pre-Covid rates,” its Chief Economist Aditi Nayar said in a report.
The agency said a cut in the excise duties to the pre-pandemic levels before the start of the new fiscal year on April 1 will entail a cost of up to Rs 92,000 crore to the exchequer.
The fuel prices are a politically sensitive subject and a review has not been done since the announcement of the state elections to five states, including Uttar Pradesh, which the ruling BJP is fighting to wrest back. Global crude prices touched a seven-year high of USD 107 per barrel after being in the over USD 80 per barrel range.
The international crude oil price, in Indian basket terms, surpassed the USD 100 per barrel mark on February 24 for the first time since September 4, 2014, fuelled by intensifying geopolitical tensions between Russia (world’s third largest oil producer) and Ukraine, as well as global demand outweighing the current supply, the report said.
The price of the Indian crude oil basket has averaged USD 93.1 per barrel so far in February 2022, a 10.5 per cent surge relative to USD 84.2 per barrel in January 2022, it added.
Despite the USD 19 per barrel increase in the crude basket, the retail prices have remain unchanged across the four metros for the third consecutive month, it said.
The agency, however, also noted that after removing the central excise rates levied on petrol and diesel from their retail prices, the transmission of the increase in crude oil prices during April-November 2021 appears to have been higher than what was undertaken during June 2020 to March 2021, “suggesting some buffer to compensate for the recent rise in crude oil prices”.
In November 2021, the government had announced a cut in the central excise duty by Rs 5 per litre on petrol and Rs 10 per litre on diesel, it said.
The agency said it estimates petrol consumption to rise by five per cent and diesel by two per cent in FY23. It added that a continuation of the status quo on excise rates would entail collections in line with the FY23 budget estimate of Rs 3.35 lakh crore.
However, if the excise duties are taken back to the pre-pandemic levels of Rs 19.9 per litre on petrol and Rs 15.8 for diesel, it will result in a 27.5 per cent shortfall on the budgeted excise collection target. Currently, users pay Rs 27.9 for petrol and Rs 21.8 for diesel as excise.
The agency said a cut in excise duty, while costing on the fiscal deficit front, will help keep the consumer price inflation unaffected.
PTI
