Centre collects over Rs 3.34 lakh crore in petrol, diesel excise duty in FY2021

As per details revealed in the Parliament on July 19, the central government collected all of Rs 3,34,894 crore from excise duty on petrol and diesel in FY2021. While petrol contributed Rs 1,01,598 crore as excise duty, diesel’s contribution was more than twice that, at Rs 2,33,296 crore.

• Petrol and diesel prices hiked 76 and 73 times, respectively, in FY2021
• Excise duty collection up by almost 88 percent as against FY2020
• Hike in excise duty in FY2021 a factor in increased collection

Compared to FY2020’s combined petrol-diesel excise duty collection of Rs 1,78,311 crore, FY2021’s Rs 3,34,894 crore is a massive 87.81 percent year-on-year (YoY) increase. This increase in excise duty collection – despite much reduced vehicle use and fuel purchases in the first few months of last fiscal due to the pandemic, which saw a spate of lengthy lockdowns across the country – can be attributed to several fuel price hikes.

Hike in excise one of the factors for higher collection in FY2021

One reason for the considerable 88 percent YoY increase in excise duty collection was the hefty increase in tax on the two fuels in mid-March 2020. The Rs 19.98 per litre excise duty on petrol (in effect from July 6, 2019) was hiked to Rs 22.98 (from March 14, 2020), and thereon to Rs 32.98 (from May 6, 2020). This constitutes an increase of Rs 13 a litre.

Diesel, which outsells petrol by a huge margin in the country, given its ample use by big and small commercial vehicles, had an excise duty of Rs 15.83 per litre (from July 6, 2019). This was hiked to Rs 18.83 (from March 14, 2020) and saw a 69 percent jump to Rs 31.83 (from May 6, 2020). This constitutes an increase of Rs 16 a litre – Rs 3 more than petrol. This explains why the collection of excise duty from diesel is more than twice than that of petrol.

As per the written reply by the Minister of State for Petroleum and Natural Gas, Rameswar Teli, in the Lok Sabha, the price of petrol was hiked 76 times and that of diesel by 73 times in FY2021. As a result, within the span of 12 months – from April 1, 2020, to March 31, 2021, in New Delhi, petrol became costlier by Rs 20.97 a litre and diesel by Rs 18.58 a litre. Motorists in Mumbai had to pay more than their Delhi brethren – Rs 21.70 more for a petrol litre and Rs 22.77 more for a diesel litre.

As per the data, petrol saw price reductions 10 times and diesel 24 times. There no hikes or reductions on 153 days for petrol and 168 days for diesel. 

It didn’t help motorists’ cause as, along with the Centre hiking excise duty consistently through the year, most States did the same with Value Added Tax (VAT).

Significant portion of petrol and diesel price is taxes

One of the reasons for the wallet-busting fuel prices is the high level of Central and State taxes. For instance, in Delhi, on July 16, 2021, petrol cost Rs 101.54 a litre of which 32.40 percent (Rs 32.90) comprises excise duty and 23 percent (Rs 23.43) is State VAT. Club the two taxes and motorists are paying Rs 56.33 or 55.467 percent per petrol litre as tax.

As regards to diesel, which cost Rs 89.87 a litre in the capital city on July 16, the excise duty component was Rs 31.80 or 35.38 percent, while VAT is Rs 13.14 or 14.62 percent of the retail price. Together, the two taxes account for Rs 44.94 or exactly 50 percent of the price a motorist pays to tank up on diesel.

Will fuel prices soften?

To briefly put it, expecting petrol and diesel prices to fall soon is expecting too much. Although OPEC, which had cut production by a massive 9.6 million tonnes a day from May 2020, has recently agreed to increase supplies by 400,000 barrels a day from August 2021, this is too small to warrant any major drop in crude oil prices.

With most global economies, particularly the USA, Europe and China swinging back into work mode, demand from the transportation and shipping industries is on the rise. This is amply seen in the price rise of crude oil basket. Having plummeted to $19.90 a barrel in April 2020, when the world first saw the crippling impact of the pandemic, crude oil prices have gradually risen to around $70 a barrel in recent months.