The government has decided to raise excise duty on petrol and diesel significantly, by upto Rs8 per litre, to mobilise additional resources that would be required to fight the Covid-19 pandemic.

As per the amendments introduced in the Finance Bill 2020, the Finance Ministry has proposed to raise special additional excise duty on petrol to Rs18 per litre from present Rs10 per litre and on diesel to Rs12 per litre from the present Rs4 per litre. The said changes have been made by amending the eighth schedule of the Finance Act 2002.

It is not clear whether the entire Rs8 per litre increase in special additional excise duty would be used as cap to raise duties upto that level or the government would notify entire increase at one go.

If this happens, the retail price of petrol and diesel could shoot up by Rs5-6 per litre as remaining amount may be absorbed by public sector oil marketing companies who have been daily reducing the price of two petroleum products in line with global fall in oil prices.

Sources said that a notification with changes in duty structure on petrol and diesel may come later in the evening on Monday.

For the government, a Rs8 per litre rise would a bonanza that would increase its annual excise collections from the sector by a whopping Rs1,20,000 crore. This, govermment officials feel, along with savings of over $15-20 billion in oil import bill in FY21, will provide enough room to bring the economy back on track after Covid-19 fight.

But any resultant increase in retail price of the two products could have a negative impact on the economy already facing a slowdown. Price rise of auto fuels could have a multiplier effect raising prices of several essential products and services and pushing up inflation.

In February, the consumer price inflation had fallen to 6.58 per cent but this could begin to rise again if petrol and diesel prices are raised.

On March 14, the government had raised excise duty on petrol and diesel by Rs3 per litre, the highest in the five years, taking advantage of the low global oil prices to boost its coffers. Through this increase, the centre could now gain in excess of Rs45,000 crore revenue for the full year.

However, it spared consumers from any immediate increase in retail price of the two auto fuels that may be adjusted later keeping any increase to the minimum. Petrol prices fell 13 paisa per litre to Rs69.87 a litre and diesel by 16 paisa to Rs62.58 in Delhi on Saturday.

As per a notification issued by Central Board of Indirect Taxes and Customs, special duty on petrol and diesel was hiked by Rs2 per litre to Rs10 a litre and Rs4 a litre respectively.

Additionally, road and infrastructure cess on the two products had also been raised by Rs1 per litre to Rs10 per litre, effectively increasing the central duty on petrol and diesel to Rs3 per litre. The new rates were effective from March 14.

The increase of Rs8 per litre in excise duty will be the highest in the two tenures of the NDA government. It will follow a Rs3 per litre increase in duty on March 14, and another Rs2 per litre increase in excise/cess proposed in 2019 Union Budget. Before these increases, petrol and diesel prices went for a series of nine hikes in quick sucession between 2015 and 2016. There was, however, a Rs2 per litre cut twice on both petrol and diesel in October 2017 and again in October 2018.

At present, the total central excise duty on petrol stands at Rs22.98 per litre and on diesel, at Rs18.83 per litre. With Rs8 per litre increase, these would increase substantially to Rs30.98 per litre on petrol and Rs26.83 on diesel. In addition, states also levy VAT on the two products. Petrol and diesel has not been so far included under GST.

Separately, sell-off continued in the Indian stock markets as the BSE Sensex fell over 3,200 points after trade resumed on the exchanges after a 45 minute halt.

The Nifty50 on the National Stock Exchange also lost over 900 points to trade below the 8,000 mark.

At 11.05am, Sensex was trading at 26,686.71, lower by 3,229.25 points or 10.79 per cent from the previous close of 29,915.96.

It had opened at 27,608.80 and has so far touched a high of 27,900.83 and a low of 26,645.83 points.

The Nifty50 was trading at 7,821.50, lower by 923.95 points or 10.56 per cent from its previous close.

The sell-off was on the back of the coronavirus crisis as several cities and states in India have been put under lockdown.

Asian stock exchange too traded in the red.

So far, over 380 confirmed cases of the disease have been reported in India and seven people in the country have lost their liv

Indo-Asian News Service