Excise duty on petrol and diesel was reduced by 2 per litre

Highlights The government will lose of Rs 13,000 crore during the rest of FY18

New basic excise duty rate on petrol, diesel to take effect on October 4

Analysts have warned the government could miss the fiscal deficit target

Under pressure over rising fuel prices, the government has, effective today, cut excise duty on petrol and diesel by two rupees a litre to protect retail consumers from higher global crude oil prices, the finance ministry said. Analysts have said that the move could widen the country's fiscal deficit.



The cut in the petrol and diesel duties will cost the government Rs 13,000 crore for the remaining year till March end and Rs. 26,000 crore for the full year, the ministry said.



The government, which had raised duties three years ago to take away gains arising from plummeting global oil prices and 11 times since, has been flayed by the opposition for not cutting excise duty despite a sustained rise in fuel prices since early July. On petrol, the government levied excise duties totalling Rs. 21.48 per litre and on diesel, Rs. 17.33 per litre. The cut comes ahead of key state elections in Gujarat and Himachal Pradesh.



Petrol prices have jumped by Rs. 7.8 per litre since July 4, while diesel prices have touched an all-time high after rates went up by Rs. 5.7. Petrol on Tuesday was priced at Rs. 70.88 per litre in Delhi while a litre of diesel at Rs. 59.14, the highest ever. After the revision, petrol prices fell by Rs 2.5 per litre in Delhi today.



Amid pressure from not only opposition parties, but also allies, Petroleum Minister Dharmendra Pradhan had said last month that the government could not change fuel prices on a knee-jerk basis. "The government will not interfere in the day-to-day functioning of the OMCs... for the last three years, the pricing mechanism has been linked to the market," he had said.



The finance ministry too had had earlier ruled out lowering excise duties on petroleum products, citing pressure on government finances. Finance Minister Arun Jaitley has been struggling to tackle the country's widening fiscal gap amid growing pressure to support economic growth.





In a statement, the ministry said the decision to cut excise duty on petrol and diesel, both branded and unbranded, was taken by the government "to cushion the impact of rising international prices of crude petroleum oil and petrol and diesel on Retail Sale Prices of Petrol and Diesel as well as to protect the interest of common man."Analysts have warned that India's deficit could widen to between 3.5 per cent to 3.7 per cent of gross domestic product in the current fiscal year ending in March 2018, against an estimate in the budget of 3.2 per cent."The cut in excise duty has modestly increased the likelihood of fiscal slippage this year," Aditi Nayar, an economist at ICRA, the India arm of credit rating agency Moody's, told Reuters.

Economic growth slipped to 5.7 per cent in three months through June, the lowest in three years while the government looks for ways to stimulate the economy. The government reported a fiscal deficit of Rs 5.25 lakh crore for April-August or 96.1 per cent of the budgeted target for the current fiscal year that ends in March 2018.The Reserve Bank of India (RBI) is expected its policy rate unchanged at a policy meeting on Wednesday despite a sharp slowdown in economic growth, after inflation surged to a five-month high, threatening the central bank's target.