With the clear aim of reining in the inflation, the Centre on Saturday lowered Central Excise Duty on petrol by ₹ 8 per litre and on diesel by ₹6 per litre. It also decided to cut custom duty on raw materials for plastic, iron and steel. Ujjawla beneficiary will get a subsidy of ₹200 per cylinder for consumption up to 12 cylinders a year.

In a series of tweets, Finance Minister Nirmala Sitharaman said post reduction of Central Excise Duty, prices of petrol will come down by ₹9.50 a litre and that of diesel by ₹7 a litre. “It will have revenue implications of around ₹1-lakh crore/year for the government. I wish to exhort all State governments, especially States where reduction wasn’t done during the last round (November 2021), to also implement a similar cut and give relief to the common man,” she said.

Four components

There are four components of Central Excise Duty on petrol and diesel. Petrol has basic Excise Duty of ₹1.40 a litre, Special Additional Excise Duty of ₹11 a litre, Agriculture Infrastructure & Development Cess (AIDC) of ₹2.50 a litre and Road and Infrastructure cess of ₹13 a litre. All these total up to ₹27.90 a litre. Now, it will be ₹19.90 a litre. 

Similarly, the four components for diesel are ₹1.80, ₹8, ₹4 and ₹8, respectively, and total up to ₹21.80 a litre. After the revision, it will be ₹15.80 a litre.

Among these four components, money collected through Basic Excise Duty is part of the Devolution Pool. A senior government official told BusinessLine that reduction has been done in cess and not in basic excise duty. “This means the entire loss will be born by the Centre and there is no change in the devolution component,” he said.

However, since the Centre levies excise at specific rate i.e., Rs X a litre and States/Union Territories levy at ad valorem i.e. at a percentage of total value, reduction in Central Excise Duty will bring down the base and thus the retail price. This is the reason that effective reduction will be higher than reduction in Central Excise Duty. Officials say, if States/UT also cut VAT then the consumer will be benefited more.

Ujjwala scheme subsidy

Sitharaman also said that each of over nine crore beneficiaries under PM Ujjwala Scheme will get a subsidy of ₹200 per gas cylinder (upto 12 cylinders). “This will help our mothers and sisters. This will have a revenue implication of around ₹6,100 crore a year,” she said.

There have been efforts to bring down the prices of consumer goods by cutting down import duty on raw materials and discouraging exports. “We are also reducing the customs duty on raw materials and intermediaries for plastic products where our import dependence is high. This will result in reduction of cost of final products. Similarly, we are calibrating customs duty on raw materials and intermediaries for iron and steel to reduce their prices. Import duty on some raw materials of steel will be reduced. Export duty on some steel products will be levied,” she said, adding that measures are being taken to improve the availability of cement and through better logistics to reduce the cost of cement.

These steps have been taken at a time when retail inflation based on Consumer Price Index (CPI) surged to eightyear high of 7.79 per cent in April, while producers’ inflation based on Wholesale Price Index (WPI) crossed all-time high in latest series with over 15 per cent in April.