Excise duty cut offsets crude surge, offers little relief at pump

MUMBAI: The Centre’s ₹10 per litre cut in excise duty on petrol and diesel is unlikely to bring immediate relief to consumers, as the benefit appears to have been absorbed by oil marketing companies (OMCs) grappling with rising crude prices amid the West Asia conflict.

While the move eases pressure on OMCs, retail fuel prices in cities like Mumbai have remained unchanged, highlighting the limited direct impact on consumers.Industry data shows that even as central excise duty was reduced, the base depot price of petrol was simultaneously increased by ₹10 per litre, effectively neutralising the tax cut. As a result, petrol continues to retail at around ₹103.45 per litre in Mumbai, leaving consumers with no tangible price benefit.Experts said the excise duty structure comprises four components, and the latest reduction applies only to the Special Additional Excise Duty. The other three components—Basic Excise Duty, Agriculture Infrastructure & Development Cess (AIDC), and Road & Infrastructure Cess—remain unchanged.Following the revision effective March 27, total excise duty on petrol has declined from ₹21.90 to ₹11.90 per litre, while on diesel it has reduced from ₹17.80 to ₹7.80 per litre.

However, claims that excise duty on diesel has been reduced to zero are misleading, as multiple components of the levy continue to be charged.“The reduction is largely an internal adjustment to cushion oil companies against higher crude costs. There is no certainty that the benefit will be passed on to consumers,” said Mumbai-based petroleum dealer and pricing expert Kedar Chandak.A closer look at the pricing structure shows that while the central tax component has declined, state taxes such as VAT and cess remain unchanged.

In Mumbai, these levies continue at ₹23.98 per litre, while dealer commissions are steady at ₹4.01 per litre. Consequently, the total tax burden has reduced from ₹45.88 to ₹35.88 per litre, but without impacting the final retail price.Analysts noted that the overall tax burden as a percentage of the base price has dropped sharply—from 85.66% to 56.45%—indicating a structural shift in pricing. However, this has primarily helped offset the rise in base fuel prices rather than reduce pump rates.The development comes amid sustained volatility in global crude markets due to geopolitical tensions in West Asia, which has significantly increased procurement costs for OMCs. The duty cut, therefore, is seen as a measure to stabilise oil companies’ margins rather than provide consumer relief.Consumers, meanwhile, remain puzzled by the absence of price cuts despite the headline announcement, underlining the complexity of India’s fuel pricing mechanism where multiple tax components and market-linked pricing determine the final rate.