Effect of Excise duty cut on Petrol and Diesel

Effect of Excise duty cut on Petrol and Diesel


In a big relief to consumers ahead of Diwali, the government has recently declared a record reduction in excised duty on petrol and diesel.
Reduction: Excise duty on petrol has been cut by Rs 5 and on diesel; it has been cut by Rs 10. The move is based the reversal mechanisms of the hike in duties in 2020 by Rs 13 per liter for petrol and Rs 16 per liter on diesel, following a steep drop in oil prices, and comes on the peak of higher crude prices which was pushing retail prices to record highs.
With this decision of government, petrol and diesel are set to become cheaper. The reduced prices of petrol and diesel will come into effect from November 4.

Good effects:

  • The reduction in excise duty of diesel is doubled that of petrol and will come as a boost to the farmers during the upcoming Rabi season.
  • Centre has urged Indian states and Union Territories to reduce value added tax (VAT) on petrol and diesel to give relief to consumers.

Adverse effects:

  • The excise duty cuts on diesel and petrol might be cost Rs 45,000 crore on government.
  • It leads to a 0.3 percentage point widening on the Centre’s fiscal deficit as per assumption.
  • As per some economists’ assumption, going by the overall consumption, the costs of the surprise move – which came after months of concerns over high payouts at filling stations – for the entire fiscal, will come at Rs 1 lakh crore or 0.45 per cent of GDP.

Summary of effects:

  • The tax cuts may be lower headline CPI inflation by 0.14 percentage points due to direct effects and up to 0.3 percentage points, if indirect effects are included.
  • The timing ahead of the move will also help consumption and it will help for retaining its 9.2 per cent real GDP growth for FY22.

Question & Answer:

Q1. How much cut has been done by Government on excise duty on Petrol and Diesel?

Ans. Rs. 5 cut on Petrol and Rs.10 cut on Diesel

Q2. Which country is biggest petrol and diesel supplier to India?

Ans. Iraq (second USA)

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