A cut in the excise duty on fuel will negatively impact the fiscal deficit glide path.

The union government, on Monday, said it is not in favour of cutting the excise duty on fuel. Petrol and diesel prices were hiked by 10 paise per litre on Monday and now retail at Rs. 82.35 per litre and at Rs. 70.01 per litre respectively in Mumbai, renewing calls for a cut in the excise duty in a bid to ease the burden on consumers.

However, the Narendra Modi-led regime does not want to cut the excise duty on fuel because a reduction in duty will negatively impact the fiscal deficit glide path. A duty cut will result in a Rs 13,000 loss to the exchequer. Instead, New Delhi wants states to cut the sales tax or VAT on fuel.

A finance ministry official said that a reduction in excise duty, which makes up for a quarter of the retail fuel price, is not advisable if the government is to stick to the path of reducing budgetary deficit, the PTI reported. "Excise duty cut would be a political call, but is not advisable if we have to stick to the fiscal deficit glide path outlined in Budget," he said. The government is targeting reducing fiscal deficit to 3.3 per cent of the gross domestic product (GDP) in the current fiscal, from 3.5 per cent in the previous fiscal. "Every rupee cut of excise on fuel will result in a loss of Rs 13,000 crore to the government," the official said, adding that the oil ministry has not yet officially asked for a cut in fuel excise duty.

The official said states should cut VAT on fuel to ease the burden on the consumer. "Fiscal considerations are far higher than one or two rupee price impact on consumers," he said. "One or two rupee increase doesn't impact inflation." The central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. State sales tax or VAT vary from state to state. In Delhi, VAT on petrol is Rs 15.84 and Rs 9.68 a litre on diesel.

While the government is hoping that geopolitical tensions will ease and that US shale oil will help ease oil prices, it is not in favour of tinkering with the autonomy given to state-run oil firms. "Once we have decided on daily price revision, it is not a good thing to tinker with that either through excise or by asking oil marketing companies to absorb prices," the official said.

Effective 06:00 am on Monday, petrol retailed at Rs. 82.35 per litre in Mumbai, Rs. 77.29 per litre in Chennai, Rs. 77.2 per litre in Kolkata and Rs. 74.5 per litre in Delhi, according to Indian Oil data. Diesel retailed at Rs. 70.01 per litre in Mumbai, Rs. 69.37 per litre in Chennai, Rs. 68.45 per litre in Kolkata and Rs. 65.75 per litre in Delhi. The Mumbai-traded Indian Oil Corporation (IOC) is the country's largest fuel retailer.

Monday's hike, necessitated due to firming international oil prices, follows a 32 paise increase in the rates of petrol effected over the last two days.

India has the highest retail prices of petrol and diesel among South Asian nations as taxes account for half the pump rates. State-owned oil firms revise prices daily to instantly reflect changes in cost.

The oil ministry, had earlier this year, sought a reduction in the excise duty on petrol and diesel to cushion the impact of rising international crude oil prices but Finance Minister Arun Jaitley, in his Budget, presented on 1 February, ignored those calls.

The central government had cut the excise duty by Rs 2 per litre in October 2017, when petrol retailed at Rs 70.88 per litre in Delhi and diesel at Rs. 59.14. Because of that reduction, diesel prices had, on October 4, 2017, come down to Rs 56.89 per litre and petrol to Rs 68.38 per litre. The October 2017 duty cut cost the government Rs 26,000 crore in annual revenue and about Rs 13,000 crore during the remaining part of the current fiscal year.

Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT, but just four states - Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh - lowered rates while others including BJP-ruled states ignored the call.

Last June, state-run oil firms Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) dumped a 15-year old practice of revising rates every fortnight.

In the 15 months to January 2016, the government raised the excise duty nine times to shore up finances as global oil prices fell. In all, the duty on petrol was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months, which helped New Delhi mop up Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.

With inputs from PTI