The government on Tuesday raised excise duty on petrol and diesel once again. It had last raised excise duty on petrol and diesel by Rs 1.50 a litre each to help it achieve the fiscal deficit target for this year on November 14.

In this round, the excise duty on petrol will be raised by Rs 2.25 per litre, while for diesel it will be hiked by Rs 1 effective midnight. The government expects to mop up Rs 4,000 crore through this additional hike.

The hike will not be passed on to consumers, sources say.

Former IOC CMD S Behuria believes increasing excise duty is a step in the right direction at this point. He adds that this is a good move by the government to raise money in a quick way.

S Narayan, former financial secretary says while this is a very good step and the government is looking at the interest of the consumers as well as its own balance sheet, it should perhaps also take care of the companies’ interests.

Gagan Dixit of Quant Global Research does not think that OMCs will not be allowed to enjoy high margins. "In case of gasoline these oil marketing companies (OMCs) are making in the range of something like Rs 2-4 per litre, past two-three years I have observed. So that is the typical range they are expected to make," he told CNBC-TV18.

Narendra Taneja, BJP Energy Cell feels oil prices may move northwards in the next few months.

Below is the verbatim transcript of S Narayan, S Behuria, Narendra Taneja and Gagan Dixit's interview on CNBC-TV18

Ekta: Your thoughts on the excise duty hike, second in a span of less than a month?

Narayan: What the government has done is a very good step because as you know the revenues are now far short of their budgeted targets and they need to meet the fiscal deficit target of 4.1 percent. So this is a good opportunity. The only thing is that only yesterday they reduced the petrol and diesel price also and to impose the excise duty now, perhaps there could have been a little bit of coordination so that this could have been optically better managed. But yes in terms of step it is a right step that they are taking.

I do take the point that the interest of the oil companies is not been fully taken care of in all these variations. Government continues to look at of course the customer’s interest but also continues to look at its balance sheet. So in a way I think in all this somewhere the government should also take care of the companies interest.

Anuj: Is this the call now that the government has taken that from hereon further fall in crude prices will be used up by the government and not entirely passed on to the consumers?

Taneja: Not exactly, this call has been taken because the idea was that the government has an opportunity to build a capacity because we all know that oil prices are down today but we don’t know what is going to happen tomorrow. In all likelihood, oil prices will start moving northward in months to come.

Anuj: Are you saying that in case the oil prices go up over the next two or three months, pump prices would not be raised and the cushion that has been created because of excise duty hike that would be cut, is that what you are saying?

Taneja: No, this is the government response as of today. We will have to wait and watch, we will have to study the development very carefully. The idea will be to pass on the benefit to the consumers wherever possible, to the extent possible but at the same time – this is my personal view that the government should think of setting up price stabilisation fund and use part of the money as oil prices go down to put in that fund which can be a national trust which is run in a very transparent manner.

When the prices go up and the country starts demanding, the government needs to step in; the government can step in or the fund can step in on behalf of the government to stabilise the prices so that the people can be insulated to the extent possible. So, that is just my personal opinion.

Anuj: Stocks are down quite a bit, quite clearly there is not going to be any negative impact on these companies but one thing which the market will now have to live with is that these companies will not be allowed to enjoy any kind of positive margin on petrol and diesel. That is something which is now quite clearly visible that either the prices at the pump level will be reduced or excise duty will be hiked. In such a scenario how would you approach these stocks?

Dixit: No, I do not think it is a case that these companies are not allowed to make high margins because anyway if the government doesn’t increase the excise duty, after two weeks they are going to reduce Rs 1-2 further on diesel and gasoline prices. So, in case of gasoline these oil marketing companies (OMCs) are making in the range of something like Rs 2-4 per litre, past two-three years I have observed. So that is the typical range they are expected to make.

But if crude reverses further to about USD 80/barrel, government might reduce the excise duty in future.

Anuj: In between all of this one stock which had quite clearly got almost everything going against it now is ONGC because on one hand you have lower crude prices, subsidy burden is falling but that is not being shared with ONGC yet. How would you approach this stock?

Dixit: For Oil and Natural Gas Corporation (ONGC), I expect that from next quarter there is a possibility that some clarity would emerge or at least they would start getting the benefit from declining under recoveries. What happened in last quarter is that during July to September, average crude price internationally was still higher so definitely they have not got the benefit. However, going forward if they maintain the USD 56 per barrel subsidy burden on their production, definitely their realisation would be hardly USD 5-10/barrel around that level.

Q: I have a two part question. First is do you believe this is a right step, government wants to take advantage of the lower crude prices and secondly how would companies react? Do we see a price hike today or would that be taken care of with the positive margin that these companies enjoy right now?

Behuria: I think it is a right step as an ad-hoc step. The government so far has insulated the consumers for many years on price increases. When it came to between oil industry and government, they helped them a lot by giving subsidies, under-recoveries. So when there is an opportunity for a quick mopping up without hurting anybody, I think it is a very good step but I think the government must now come out with the policy of low price regime, which is likely to remain for the next two-three years in my view. You cannot do these ad-hoc things all the time. Number two is, I don’t think that should increase any prices because they would have looked at those numbers. Basically I think the under-recoveries that oil industry is going to make is mostly marked up through excise taxes, which is okay. This is an easy and a quick way of doing it.