The move will likely lead to an immediate reduction in petrol’s retail price by a similar amount. Pump-gate rates of diesel, however, may remain unchanged, despite the tax cuts, as state oil companies presently sell diesel at a loss of Rs. 2 a litre.
It will still aid the government’s long-standing plan to free diesel prices from administrative control, on the lines of petrol.
“A cut in excise duty on petrol and diesel in the budget is being examined,” said a source, who did not wish to be identified.
Currently, taxes and duties account for as much as 32.7% or Rs. 23.41 in a litre of petrol that consumers buy for Rs. 71.56 in Delhi. Likewise, these levies account for 19.8% or about Rs. 11.36 in a litre of diesel priced at Rs. 7.28 in the Capital.
Last year, the centre collected Rs. 64,335 crore from excise duty on petroleum products, which is more than a third (about 35%) of its entire excise collections of Rs. 1.79 lakh crore in 2013-14.
The proposed cuts are similar to what the government had announced in 2008 when crude prices had crossed $135 a barrel.
The unrest in Iraq—India’s second biggest crude oil supplier after Saudi Arabia—has pushed global prices in the last two weeks to about $112 a barrel, with analysts warning that the figure may cross $120 if the crisis worsens.