The Centre’s excise duty cuts on petrol and diesel by Rs 10 each to cushion the oil marketing companies (OMCs) from making losses may cost the exchequer a staggering Rs 1.7 lakh crore if the duties remain at the current level throughout FY27.
It may partly offset the impact from levies announced to tax windfall gains on the export of diesel and aviation turbine fuel (ATF), which may fetch Rs 36,000 crore if it remained unchanged for the full year.
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However, officials said the revenue loss and gains will depend on the evolving situation and the energy price movements.
Balancing the Books
“We will be able to keep the government’s fiscal stance carefully managed. There will be efforts to have greater mobilisation through non tax revenues,” Finance Minister Nirmala Sitharaman said replying to Finance Bill debate in the Rajya Sabha.
She said the government remains committed to prudent fiscal management through better resource mobilisation, growth-oriented expenditure, targeted welfare spending, and greater transparency.
Given the revenue gains of around Rs 36,000 crore from export levies, the net impact of the duty cuts on petrol and diesel could be in the region of Rs 1.4 lakh crore in a business-as-usual scenario. This could be partly offset through the Rs 1 lakh crore buffer available in the form of the Economic Stabilisation Fund and partly through expenditure management.
Hormuz Cushion
With effect from March 27, the Centre cut excise duty on petrol by Rs 10 to Rs 3 per litre and eliminated diesel duty, reducing it from Rs 10 to zero.
“The proposal for lowering of excise duty by Rs 10 on both petrol and diesel for a fortnight is roughly in the range of Rs 7,000 crore. The situation is dynamic. The revenue implication will not be understood within a fortnight, but as we go ahead in a larger timeframe,” said Central Board of Indirect Taxes & Customs (CBIC) chairman Vivek Chaturvedi.
On the other hand, the imposition of Special Additional Excise Duty and Road & Infrastructure Cess totalling Rs 21.5/litre on export of diesel and Rs 29.5/litre on ATF may fetch Rs 1,500 crore revenue to the government in a fortnight, Chaturvedi said.
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“The higher prices are creating incentives for refineries to export (petrol, diesel and ATF),” he said, adding that such duties on petrol are nil at present based on the crack margin. However, the rates will be reviewed on a fortnightly basis, he added.
The impost on export of diesel and ATF is partly similar to the windfall taxes imposed on domestically produced crude as well as export of petrol, diesel and ATF between July 2022 and December 2024, which fetched the Centre around Rs 44,000 crore in revenue.
India Ratings senior director Devendra Kumar Pant said if the excise duty remains at the current level throughout FY27, it would cost the government Rs 1.7 lakh crore.
Bank of Baroda chief economist Madan Sabnavis estimated the total loss of revenue for the government could be in the region of Rs 1.3-1.4 lakh crore (i.e. Rs 10 reduction on a permanent basis for the entire year and no change in consumption).
“This will have to be compensated for through expenditure cuts in other areas to balance the budget,” Sabnavis said.
In the extreme case of no other change in the revenue and expenditure, the fiscal deficit will face upward pressure of around 0.4% of GDP, he said. “This can be one reason why bond yields hardened significantly today by over 10 bps,” he added.
TOPICSCrude oilThis article was first uploaded on March twenty-seven, twenty twenty-six, at fifty-seven minutes past eleven in the night.