Diesel price rise: Modi’s Rs 2.5 relief eroded by 10 rate hikes in a row; what will government do now?

As diesel prices were hiked for the tenth straight day on Monday by the oil marketing companies (OMCs), the entire Rs 2.50 per litre cut in rates announced by the government earlier this month got erased. The question now is: What will the government do next? “Given the pullback in global crude oil prices in the recent sessions, we do not expect any immediate further cut in excise duty to be announced by the Government,” Aditi Nayar of ICRA told FE Online.

In wake of rising petrol and diesel prices, Modi government had, with effect from October 5, reduced fuel rates through excise duty cut and oil company subsidy. The government had reduced excise duty by Rs 1.50 per litre and directed public OMCs to subsidise fuel by Rs 1 per litre resulting in a combined hike of Rs 2.50 per litre.

Madan Sabnavis of CARE Ratings said, “There is limited what the government can do. Only excise or VAT can be reduced. What we have done at one particular stage is to make a certain kind of announcement, all hoping prices would revert to normal. As long as the crude oil price is going up, if government cuts, it will have to take a another hit in terms of excise collections.”

While the central government is not in a position to cut rates further, state government may probably do so because it’s an ad valorem rate, he added.

Nevertheless, this followed a continuous hike in the prices of both petrol and diesel with latter getting hiked by Rs 2.51 per litre on Monday in the past ten days. The prices of petrol today remained unchanged.

Meanwhile, petrol is retailing at Rs per 82.72 per litre in New Delhi, diesel can be purchased at Rs 75.38 per litre today. In Mumbai, diesel can be availed at Rs 79.02 per litre, up 20 paise from yesterday, and petrol is retailing at Rs 88.18 per litre, an increase of 6 paise. While in Chennai, petrol is priced at Rs 85.99 per litre, in Kolkata, it is at Rs 84.54 per litre, an increase of 6 paise in each city. On the other side, diesel in Chennai is retailing at Rs 79.71, up 19 paise, and in Kolkata, it can be availed at Rs 77.23 per litre, also up 19 paise from yesterday’s price.

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