Centre, oil companies to split impact of higher crude

NEW DELHI: The Centre’s move to slash excise and impose windfall tax on diesel and aviation fuel will leave it poorer by around Rs 1.3 lakh crore if the energy crisis due to the West Asia conflict persists for a full year.

An early resolution will reduce the pressure on oil prices and consequently on govt and oil companies. On Thursday, ratings agency ICRA had said that the recently set up Economic Stabilisation Fund can help offset some of the fiscal impact.

For the moment, it has managed to ensure that consumers are fully protected as the oil retailers and govt will split the burden of higher crude prices. For the oil marketing companies (OMCs), which will have to take a hit during the March quarter, the impact will not be significant if the Indian basket remains around the current level of $112 a barrel.

“With the recent reduction in excise duty and no change in the retail prices of petrol and diesel, OMCs are expected to break even at a crude oil price of around $106 a barrel for their refining and retailing operations, vis-à-vis around $90 a barrel before this excise duty cut,” CareEdge Ratings said in a note.

For the current fiscal year, however, oil companies are fully protected as they raked in profits on every litre of petrol that was sold by them until the war broke out, just as the Centre was mopping up revenue, as the gains from lower oil prices were not passed on.

For the states, revenue from VAT is likely to increase by at least Rs 25,000 crore in FY27, with Karnataka being the top gainer, SBI Research said in a report, while suggesting that they should lower the levy in line with the Centre.


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