No excise duty cut on petrol-diesel, for now

The government has ruled out cutting Central Excise Duty on petrol and diesel. In the meantime, the government is looking to Russian window for supply of crude which is expected to cool down the impact of surging prices of Indian basket of crude

The Centre collects ₹27.90 a litre on petrol and ₹21.80 a litre on diesel with specific rate structure. That is not going to change even with the price of Indian basket of crude surging to $128.24 a barrel on March 9 from $117.39 on March 3. Significantly, the oil marketing companies (OMCs) so far have not revised retail prices of petrol and diesel since November.

A Finance Ministry official confirmed that “there is no duty revision proposal on the table to the moment.” This is against presumptions about increases by OMCs and cuts in excise duty in the wake of the surge in the Indian basket of crude prices that comprises Oman, Dubai and Brent crude. The retail prices are still lower than the estimated expectation of price revision of ₹9-14 as India imports 85 per cent of its crude requirement.

Russian Roulette

Sources said India is considering that the Russian crude available at lower prices than Dubai or Brent crude in the wake of the Ukraine crisis. There is no sanction on Russian crude. US did say that it will not buy while UK and the EU members contend that they would stop buying (from Russia) gradually. India does not buy crude from Russia.

“We believe the crude issue will be resolved the moment Russian tanks are open,” a government official said, indicating that India will go for Russian crude to soften to prices.  This expectation has been bolstered by the turn of events especially with the Oil Minister Hardeep Singh Puri having a telephonic conversation with the Russian Deputy PM Alexander Novak last week.

“Russia’s oil and petroleum product exports to India have approached $1 billion, and there are clear opportunities to increase this figure.” the Deputy Prime Minister had said.

Payment mechanism

The US and the EU decided to place sanctions against the Russia’s central bank and exclude a number of Russian banks from the SWIFT messaging system, used for trillions of dollars-worth of global transactions. The sanctions are, however, not product-specific giving room to countries like India to device their own payment mechanism.

Sources said that India is examining the possibility of using currencies such as the yuan and the dirham as a reference for conversion in case a Rupee-Rouble trade mechanism is activated. “The RBI, the Department of Financial Services and the Ministry of External Affairs are leading the discussions on how to make a rupee-rouble mechanism work as the dollar and euro are no longer available as intermediary currencies. Alternatives such as using convertible currencies like the yuan or the dirham as references for arriving at conversion value between rupee and rouble are being examined,” a source said.

Oil marketing companies

OMCs’ sources said that they have been informed about alternative mechanism for rupee-rouble. However, they have not yet contracted any new cargo from the Russians. There are also issues about dividend income from Russian fields for Indian companies. Whether they will be paid here in some currency or the product itself, that’s the big question.

“We are waiting for more clarity from Petroleum, Finance and Commerce Ministries. Talks are on with the Russians. Striking a deal is not difficult, the issue is on how to benchmark currencies, etc. This war already seems to challenge the current payment mechanisms. Though it is too early to say, there seems to be a concerted movement to create a separate mechanism which is not aligned to the US dollar, but it will take a lot of time to develop,” a source said.

Sources said that the rupee-rouble trade has been running successfully. For instance, in 2018, Russian state-owned miner Alrosa PJSC tested this with a few Chinese and Indian clients. In 2019, it initiated a rupee-rouble payment mechanism with clients from both countries. Similarly, India will be paying Russia for the five S-400 Triumf air defence systems in rupees. The deal is more than $5.2 billion.

“On the business side, for India a battered rouble in the wake of its war with Ukraine, and the US, works in its favour with imports costing less,” the source said while expecting some clarity to come by next week.

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