Government To Increase Excise Duty By Rs 2 Each On Petrol And Diesel; Retail Prices Unaffected

The government on Monday announced that it has increased excise duty on petrol and diesel by Rs 2 each, according to a gazette notification. The changes are set to take place from Tuesday.

Despite the excise duty hike, the retail prices of petrol and diesel will remain unchanged, the oil ministry clarified.

"PSU oil marketing companies have informed that there will be no increase in retail prices of petrol and diesel, subsequent to the increase effected in Excise Duty Rates today," the Ministry of Petroleum and Natural Gas posted on social media platform X.

The duty on diesel now stands at Rs 10 per litre and on petrol at Rs 13 per litre, according to a gazette notification. Previously, the duties were Rs 8 per litre for diesel and Rs 11 per litre for petrol, as per data from the oil ministry.

The hike is expected to impact oil marketing companies, as they are likely to absorb the cost. This would reduce their marketing margin by Rs 2 per litre. The integrated margin that OMCs earn from retail fuel sales currently exceeds Rs 11 per litre.

Every Rs 0.5 per litre movement in fuel margins typically affects earnings before interest, tax, depreciation and amortisation by 7% for Indian Oil Corporation Ltd., 8% for Bharat Petroleum Corporation Ltd. and 11% for Hindustan Petroleum Corporation Ltd., according to the calculations by NDTV Profit.

The announcement by the government sent shares of BPCL, HPCL and IOCL sliding by as much as 6.2%, 4.3% and 6%, respectively.

The announcement aligned with market expectations, which had priced in a likely reduction in OMCs’ marketing margins through either a cut in retail fuel prices or a hike in excise duty.

As of March 1, the retail selling price of petrol in Delhi stood at Rs 94.77 per litre. This includes a base price of Rs 54.84, freight of Rs 0.24, excise duty of Rs 19.90, dealer commission of Rs 4.39, and VAT of Rs 15.40.