DELHI: On Tuesday, in a view to mobilize revenue collection the Indian government raised the excise duty on petrol by ₹10 per litre and on diesel by ₹13 per litre at a time when the global oil prices are extremely low. Taxes account for a major share of the retail price of petrol and diesel.

The notifications by the Centre said that additional excise duty on petrol has been raised by ₹8 and special additional excise duty of ₹2 a litre has also been levied on it to give effect to a ₹10 a litre increase on petrol. In the case of diesel, additional excise duty has been raised by ₹8 and special additional excise duty by ₹5. The changes are effective from Wednesday.

A government official clarified that retail sale prices of petrol and diesel will, however, not change due to this increase in duties. The price hike will be absorbed by Oil Marketing Companies leading to no increase in retail prices of fuel at the pump.

Earlier too, the Govt has raised excise duty on petrol and diesel many times to take advantage of the lower oil prices. “The revenue generated from these duties shall be used for infrastructure and other developmental items of expenditure,” said an official.

The government waited for the lockdown restrictions on movement to partially ease the latest round of duty revision so that it will actually turn into revenue collections. In March, the government had similarly increased the duty on the two auto fuels by ₹3 each as fears of a global recession depressed oil prices.

India follows a trade parity pricing for petrol and diesel which is a market linked pricing regime with no subsidy. The fall in oil prices offers it an opportunity to raise taxes without troubling consumers although it deprives them of the benefit of a low price to the extent of increase in duty. Although retail prices of petrol and diesel are deregulated, the government at times tends to signal to state-run retailers during times of a spike in global oil prices to absorb a part of the required increase in retail price, which could be recouped at a later stage.

Since petrol and diesel are out of GST, individual states also tend to raise the value added tax (VAT) they levy on the fuels when they are in need of higher revenues. The sharp decline in global crude oil price opened up an unexpected revenue stream for the central and administrations struggling to find resources during an economic slowdown.