Providing significant relief to the Oil cos, the government on Friday announced a massive reduction in the excise duty on petrol and diesel. The duty on both petrol and diesel has been slashed by ₹10 per liter. Following this move, the excise duty on petrol has dropped to ₹3 per liter, while on diesel, it has been completely eliminated (reduced to zero). This decision comes amidst a global energy crisis, which has been exacerbated by the ongoing conflict involving the United States, Israel, and Iran. The situation has been further aggravated by Iran’s blockade of the Strait of Hormuz.
Disruption in the Strait of Hormuz
It is noteworthy that approximately 20% of the world’s total supply of crude oil and gas passes through the Strait of Hormuz—amounting to between 20 and 25 million barrels per day. Prior to the conflict, India met about 12% to 15% of its total oil requirements through supplies arriving via this route. In this context, it serves as a critical supply route for India. According to estimates, historically, 40% to 50% of India’s crude oil imports—specifically 2.2 to 2.8 million barrels per day—have arrived through this very channel.
Hardeep Puri Hails Decision as a Major Step for the Common Citizen
In a post shared on the social media platform X, Union Minister Hardeep Singh Puri stated that over the past month, international crude oil prices have surged from approximately $70 per barrel to $122 per barrel. This rise has had a direct impact on the retail prices of petrol and diesel. Fuel prices have risen across the globe; specifically, prices have increased by 0%–50% in Southeast Asian nations, [a certain percentage] in North America, 20% in Europe, and 50% in Africa.
Puri noted that the Modi government faced two options: first, to raise prices for Indian citizens—as other nations have done; and second, to shield Indian citizens from the volatility of international prices by absorbing the financial impact on its own fiscal position. In line with the government’s policy maintained over the past four years, Prime Minister Narendra Modi opted for a specific course of action, personally absorbing a financial blow to safeguard the interests of Indian citizens. The government made a significant sacrifice in its tax revenue to mitigate the heavy losses incurred by oil companies (amounting to approximately ₹24 per liter on petrol and ₹30 per liter on diesel). Concurrently, in light of rising international prices, an export tax was imposed to levy a duty on any petrol or diesel exported by domestic refineries to foreign nations. Puri lauded Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman for this decision, characterizing it as a precise, bold, and visionary move.
What is the impact of a reduction or hike in excise duty?
Changes in the excise duty levied on petrol and diesel directly impact both your personal finances and the national economy. Excise duty—also referred to simply as ‘excise’—is a tax imposed by the Central Government on fuel.
When Excise Duty Increases: Oil companies typically pass this cost on by incorporating it into their pricing, thereby making petrol and diesel more expensive.
When Excise Duty Decreases: Fuel prices decline, offering relief to the common consumer.
For the government, this tax constitutes the single largest source of revenue. These revenues are utilized for the construction of roads, bridges, and other infrastructure projects, as well as for defense expenditure and various welfare schemes. The impact of these changes can also be understood through the table below: