New Delhi, March 27: The Centre’s decision to cut excise duty on petrol and diesel by ₹10 per litre is expected to provide immediate relief to consumers while supporting oil marketing companies (OMCs) amid rising crude prices. However, the move is likely to weigh on one of the government’s key revenue streams.
Under the revised structure, excise duty on petrol has been reduced to ₹3 per litre, while diesel has effectively been brought to near-zero levels. The decision comes in response to elevated global crude prices driven by the ongoing West Asia conflict.
The tax cut is expected to help OMCs absorb higher input costs and maintain retail fuel prices without immediate hikes, thereby cushioning consumers and limiting inflationary pressures.
At the same time, the move has fiscal implications, given the significant contribution of fuel taxes to public finances. Data from the Petroleum Planning and Analysis Cell (PPAC) indicates that the petroleum sector generated over ₹7.5 trillion in tax revenues in FY24. Of this, the Centre accounted for ₹2.7–3 trillion annually through excise duties, while states mobilised over ₹3 trillion via VAT.
Fuel taxes currently contribute around 18–19% of the Centre’s gross tax revenues and 25–35% of states’ own tax collections, underscoring their importance in fiscal planning.
The excise duty structure also includes cesses and surcharges—such as road and infrastructure cess—which are retained بالكامل by the Centre and not shared with states, a recurring point of contention in Centre-state fiscal dynamics.
Market estimates suggest that every ₹1 per litre cut in excise duty results in an annual revenue loss of ₹14,000–16,000 crore. On this basis, the current ₹10 per litre reduction could translate into a revenue impact of approximately ₹1.5 trillion annually.
Commenting on the move, Nirmala Sitharaman said the decision aims to shield consumers from rising fuel costs. Meanwhile, global benchmarks such as Brent crude have crossed $100 per barrel, keeping cost pressures elevated.
While the tax cut offers short-term demand support and inflation relief, it also highlights the trade-off between consumer welfare and fiscal sustainability in a volatile energy environment.
