Government cuts excise duty on fuel, pressure on OMCs may reduce

Metro India News | DELHI

In a move aimed at providing immediate relief to oil marketing companies (OMCs) facing mounting losses due to surging global crude prices, the Indian government has announced a reduction in excise duty on petrol and diesel. Shares of major OMCs, including IOC, HPCL, and BPCL, reacted positively to the news, rising between 1% and 1.5% in early trade.

Analysts described the excise duty cut as a liquidity support measure rather than a signal for OMCs to generate higher profits. The government is essentially stepping in to absorb part of the under-recovery burden, ensuring continued fuel supplies without putting excessive strain on the companies’ balance sheets. Consumers, particularly households, remain protected at the top of the priority pyramid, while industrial consumers bear a relatively larger burden.

Prior to the excise duty cut, retail marketing margin losses were estimated at approximately Rs 18–20 per litre for petrol and Rs 30–35 per litre for diesel. Following the 10-rupee cut, these blended losses are projected to decline significantly—potentially to below Rs 15 per litre or even below Rs 10 per litre, depending on how crude prices behave going forward. An energy analyst noted that the move helps alleviate some of the significant losses in the petroleum sector, though losses have not disappeared entirely given current high crude prices and wide spreads affecting India’s import basket.

The relief is expected to be temporary, with hopes that retail price increases may be permitted once the situation normalizes. The analyst emphasized that the government’s intention is clearly to manage systemic losses rather than allow exceptional profits for OMCs. Even in an optimistic scenario, the focus would likely be on gradually normalizing marketing margins to help recoup previous losses, rather than letting companies retain windfall gains.

The previous break-even crude price for comfortable margins was around $71–74 per barrel. Every dollar increase in crude prices translates to roughly 53–55 paise per litre impact on product prices. A Rs 10 per litre price hike, for reference, roughly offsets a $20 rise in underlying product prices. With substantial under-recoveries still to be addressed, any rollback of the duty cuts is likely to be measured and prudent.