Government Slashes Excise Duty on Petrol And Diesel to Rescue Bleeding OMCs

The Central government has reduced the special additional excise duty on petrol and diesel, offering potential relief to oil marketing companies (OMCs) grappling with rising global crude oil prices and currency pressures. According to a notification issued by the Department of Revenue under the Ministry of Finance, the excise duty on petrol has been cut from Rs 13 per litre to Rs 3, while the duty on diesel has been reduced from Rs 10 per litre to zero.

The move comes at a time when OMCs have been facing significant financial strain due to elevated crude oil prices and a weakening rupee, which has made imports more expensive. Despite rising input costs, retail fuel prices have largely remained unchanged, increasing the burden on these companies. Analysts suggest that the reduction in excise duty could help ease the pressure on OMCs’ margins.

According to estimates by Nomura, oil marketing companies are currently incurring a blended marketing margin loss of approximately Rs 48.8 per litre. The government’s decision is seen as a step toward mitigating these losses, although the actual benefit will depend on whether companies choose to pass on the reduction to consumers or use it to offset their financial strain.

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India’s fuel consumption remains substantial, with daily usage estimated at around 325.7 million litres of diesel and 164.8 million litres of petrol. Given this scale, even minor changes in taxation or pricing can have significant implications for both government revenues and the financial health of oil companies operating in the country.

Experts note that if OMCs pass on the benefits of the excise duty reduction to consumers, the net impact may be neutral for the companies while reducing fuel prices at the pump. However, this would result in a revenue loss for the government in the upcoming financial year. Past trends indicate that state governments may adjust their Value Added Tax (VAT) rates, which could offset any price reductions for consumers.

Global oil prices have shown some signs of easing after recent volatility. Brent crude fell below $106 per barrel, while West Texas Intermediate traded near $94 per barrel following a surge of over 45 per cent this month. The decline came after the United States delayed potential action against Iran’s energy infrastructure, providing temporary relief to markets. However, continued geopolitical uncertainty suggests that fuel pricing and supply dynamics will remain under close watch.

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