Petrol, diesel excise duty cut may cost govt over Rs 1 lakh crore, fiscal hit to be reviewed fortnightly

The Centre’s decision to cut excise duty on petrol and diesel by Rs 10 per litre could result in a revenue loss exceeding Rs 1 lakh crore on an annualised basis, significantly impacting the government’s fiscal position even as it seeks to shield consumers and oil marketing companies (OMCs) from a global oil shock, economists told Business Today TV. 

The duty reduction, which brings excise on petrol down from Rs 21.90 per litre to Rs 11.90 per litre, comes amid a sharp surge in international crude prices. While retail pump prices remain unchanged, the move effectively shifts the burden onto the exchequer, reducing the Centre’s per-litre tax realisation.

Government officials indicated that the revenue implications remain fluid and will be assessed on a fortnightly basis, factoring in import trends and global price movements. “The situation is dynamic, and not business as usual,” said Vivek Chaturvedi, Chairman, Central Board of Indirect Taxes and Customs (CBIC), underlining the uncertainty surrounding revenue projections.

On the export front, Chaturvedi noted that duties on petrol are currently nil, given prevailing crack margins, but these will be reviewed every fortnight. The government has, however, imposed a levy on diesel exports, which is expected to generate about Rs 1,500 crore over a two-week period. The measure is aimed at discouraging exports and ensuring adequate domestic availability at a time of tight global supply.

Domestically, the policy focus remains on stabilising fuel prices and supporting OMCs, which have been absorbing significant under-recoveries. “Steps have been taken to ensure under-recoveries by OMCs are well absorbed and there is no sudden increase in prices,” Chaturvedi said. The excise cut is designed to partly offset these losses, enabling companies to continue fuel supply without passing on the full impact of elevated crude prices to consumers.

India Ratings and Research estimates that if the current duty structure is maintained through FY27, the revenue loss could be as high as Rs 1.7 lakh crore, significantly complicating the government’s fiscal arithmetic. “If the excise duty remains at the current level throughout FY27, it would cost the government Rs 1.70 lakh crore,” said Devendra Kumar Pant, Senior Director, Public Finance, India Ratings and Research. Fuel taxes have historically been a major contributor to indirect tax revenues, and any sustained reduction could widen the gap in meeting budgeted targets.

The government’s approach reflects a calibrated trade-off, absorbing fiscal pressure to maintain price stability and prevent inflationary spillovers. However, with crude prices remaining volatile and geopolitical risks elevated, the duration of this intervention will be critical in determining the overall impact on public finances.