For the first time since March 2024, petrol and diesel prices in India might see a reduction after October 5. This speculation follows comments made by India’s Oil Secretary, Pankaj Jain, hinting at a potential price cut. Additionally, media reports suggest that Maharashtra’s state elections are likely to be held in early November, with official dates expected to be announced by mid-October.
According to CLSA, Maharashtra is an important political battleground. The BJP-led alliance may reduce fuel prices as a populist measure ahead of the elections. However, the brokerage firm also suggests that the government might raise excise duty on petrol and diesel alongside any retail price cuts.
Excise duty is an indirect tax imposed by the central government on the manufacture or sale of goods, including petrol and diesel. Currently, the government charges an excise duty of ₹19.8 per litre on petrol and ₹15.8 per litre on diesel. These are significantly lower than their peak levels in 2021, when oil prices were above $100 per barrel. The last excise duty cut took place when crude oil prices crossed $100 per barrel.
With Brent crude prices now below $75 per barrel, CLSA believes the government may take the opportunity to raise excise duty.
Benefits to the Government
A potential hike in excise duties would be highly beneficial for the Indian government. CLSA estimates that for every ₹1 increase in excise duty on petrol and diesel, the government could collect an additional ₹16,500 crore and ₹5,600 crore annually, respectively.
Impact on Oil Companies
Falling oil prices in early September have positively impacted oil marketing companies like Indian Oil, Bharat Petroleum, and Hindustan Petroleum. According to CLSA, these companies’ marketing margins have jumped to ₹13 per litre for diesel and ₹10 per litre for petrol. However, if the government implements both a fuel price cut and an excise duty hike, these companies could become vulnerable.
For example, if the government reduces petrol and diesel prices by ₹1 per litre and raises excise duty by the same amount, any increase in oil prices above $80-85 per barrel could limit the pricing freedom of these companies.
Key Highlights
Indian oil companies (IOC, BPCL, HPCL) earned ₹13-14 per litre profit in September 2024, as crude prices dropped by more than 15% since July.
In 2022, with Brent crude averaging $100.93 per barrel, petrol and diesel were priced at ₹95 and ₹88, respectively.
As of September 2024, petrol is priced at ₹96 per litre and diesel at ₹89 per litre, with crude averaging $72 per barrel.
This potential fuel price reduction and excise duty hike will be closely watched by consumers, the government, and oil companies alike as it could significantly affect pricing and margins across the board.
