High crude oil prices due to geopolitical concerns may result in an increase in petrol and diesel prices by Rs 6 to Rs 8 per litre, as per ratings agency ICRA. According to the ratings agency, the current spike in crude prices of Rs 6-8 per litre explains the delayed revision in RSPs (retail selling prices) of MS (motor spirit) and HSD (high speed diesel).
"The impact of the latter on RSPs and CPI inflation can be offset by restoring excise charges on these fuels to pre-pandemic levels," ICRA Chief Economist Aditi Nayar said. "The total income loss to the Centre in FY2023 is expected to be Rs 920 billion if excise duty on MS and HSD is decreased to pre-pandemic levels."
On Thursday, the international crude oil price in Indian basket terms reached $100 per barrel for the first time since September 4, 2014, owing to increased geopolitical tensions between Russia and Ukraine, as well as limited supplies. However, crude oil prices returned to above $97 a barrel on Friday, as a spike in US oil stocks, combined with assurances of Russian energy supplies, depressed prices. Despite the recent surge in crude oil prices, the monthly average "After the partial drop in November 2021, central excise rates on MS and HSD currently stand at Rs 27.9 per litre and Rs 21.8 per litre, respectively, which are Rs 8 per litre and Rs 6 per litre higher than the pre-pandemic period of July 2019-March 2020," the agency said.
"The Union Budget for FY2023 forecasts a 15% decrease in excise tax collections to Rs 3.4 trillion, following a modest 0.6% increase included in FY2022 RE (Rs 3.9 trillion), following the excise cut implemented in November 2021."
Due to the drop in crude oil prices following the onset of the Covid-19 epidemic, the Centre increased the excise duty on MS and HSD by a total of Rs 13 per litre and Rs 16 per litre, respectively, to Rs 32.9 per litre and Rs 31.8 per litre in April and May 2020. Following that, in November 2021, it announced a reduction in central excise duty of Rs 5 per litre on MS and Rs 10 per litre on HSD.
"At the moment, the total cesses levied by the GoI on MS and HSD are Rs 27.9 per litre and Rs 21.8 per litre, respectively. These are Rs 8 per litre and Rs 6 per litre higher than the prices levied during the pre-pandemic period of July 2019-March 2020," ICRA added.