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Excise duties on petrol, diesel raised

The government on Thursday raised the excise duties on petrol and diesel by Rs 2 a litre to fund an “ambitious infrastructure development programme” this and the next financial year, including 15,000 km of road construction.

End-users, will, however, be spared a price rise, as oil marketing companies will absorb the rise in duties.

The rise in duties, effective Friday, would fetch the government additional revenue of Rs 6,000-7,000 crore in the remaining months of this financial year, sources said. “The government has decided to increase basic excise duties on petrol and diesel — both branded and unbranded — by Rs 2 a litre. Allocation of these resources to the roads sector will spur economic activity and employment generation in this sector,” said an official statement.

The plan to use proceeds from the excise duty increase for infrastructure comes at a time when the Centre is struggling to meet its FY15 fiscal deficit target of 4.1 per cent of gross domestic product. Had the Centre financed road projects with this financial year’s budgetary allocations, it would have led to an additional burden on the government at a time when the shortfall in tax revenue is expected to be high as Rs 1 lakh crore. On Wednesday, Finance Minister Arun Jaitley had said on his Facebook page spending on infrastructure would be stepped up.

This is the third time in seven weeks that the Centre has raised excise duties on petrol and diesel. While the basic excise duty on unbranded petrol was raised from Rs 4.95 a litre to Rs 6.95 a litre, that on unbranded diesel was increased from Rs 3.96 to Rs 5.96 a litre.

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The total incidence of the excise duty rise on petrol, after including special excise duty and road cess, will be Rs 14.95a litre; that on diesel will be Rs 7.96 a litre.

The excise duty on branded petrol has been raised from Rs 6.10 to Rs 8.10 a litre and on branded diesel from Rs 6.25 to Rs 8.25 a litre.

On November 12, the Centre had increased excise duties on petrol and diesel by Rs 1.5 a litre. On December 2, it had again raised the duty on petrol by Rs 2.25 a litre and diesel by Rs 1 a litre.

While the first two excise duty increases are likely to bring in additional indirect tax revenue of about Rs 10,000 crore in the remainder of this financial year, the latest round of increases could bring in Rs 6,000-7,000 crore of additional proceeds.

So, the government would garner Rs 16,000-17,000 crore from these increases.

On annualised terms, the proceeds from Thursday’s duty increase stand at Rs 24,000-28,000 crore, while that from the previous two rounds of increases are about Rs 30,000 crore. As such, in a year, the government will get Rs 54,000-58,000 crore from the three duty increases.

An Indian Oil Corporation (IOC) spokesperson said oil marketing companies were earning a positive margin on the sale of the now-decontrolled petrol and diesel. Therefore, as was the case with the past two increases, this rise, too, would be absorbed by them, he added.

IOC sells 42 million tonnes (mt) of diesel and petrol a year.

On Wednesday, oil marketing companies had skipped cutting the prices of the two fuels. The slump in global oil rates had warranted a price cut of Rs 3.22 a litre for petrol and Rs 3 a litre for diesel. Even after adjusting for the increase in excise duties, oil firms will have a margin of about Re 1 a litre.

Last month, Chief Economic Advisor Arvind Subramanian had pitched for increasing public investment to drive growth.

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