‘Govt has room to cut fuel excise by Rs 8.5 per litre’
NEW DELHI: Amid speculation that the Centre may be considering a reduction in excise duty on petrol and diesel in view of the recent surge in retail prices of the two fuels, ICICI Securities has said there is enough room to cut the levy by Rs 8.50 per ltr and still meet the Budget estimate for fuel excise collections for 202122 (Apr-Mar).
"We estimate excise duty on auto fuels in FY22E, if it is not cut, at Rs 4.35 trln vs budget estimate of Rs 3.2 trln. Thus, even if excise duty is cut by Rs 8.5/ltr on or before 1 Apr ‘21, FY22E budget estimate can be met," ICICI Securities said.
The brokerage house is optimistic of a reduction in fuel excise in view of the recovery in fuel demand, impending privatisation of state-owned Bharat Petroleum Corp Ltd, and inflation concerns, but expects any such cut to be "more modest" than 8.50 rupees a ltr.
Following the sharp fall in tax revenues on account of the lockdown to curb the COVID-19 pandemic, the government had in May raised excise duty on petrol by 10 rupees per ltr and diesel by 13 rupees per ltr.
Currently, excise duty accounts for 30-40% of the retail prices of petrol and diesel. Although ICICI Securities did not mention it in the report, a major reason for speculation over the likelihood of an excise duty cut is the upcoming assembly elections in West Bengal, Kerala, Assam, Tamil Nadu, and Puducherry.
With the expectation that any excise duty cut in the near future would be by an amount lower than 8.50 rupees a ltr, the brokerage house said such a reduction could help boost marketing margins of public sector fuel retailers, provided the cut in excise duty is not fully passed on to consumers.
"Net marketing margins recovering to Rs 2-2.5/ltr may be key to GoI (government of India) realising high price for stake sale in the ongoing privatisation (of BPCL)," it said.
"Petrol and diesel prices have been hiked by Rs 7.67.7/ltr (9-10%) in Q4 FY21 but still net margin will fall at Rs 1.06/ltr on 16 Mar ’21 unless retail prices are hiked by another Rs 1.75/litre.