The excise duty on petrol was reduced by INR 5 per litre (/l) and the excise on diesel was reduced by INR 10/l by the central government on 4 November 2021. This settled the retail price of petrol in Delhi at INR 103.97/l which is still higher than the average retail price of petrol in Delhi of INR 101.89/l in October 2021. The retail price of diesel at INR 86.67/l after the reduction in excise is lower than the price of INR 90.17/l in October 2021. Excise duty (central levy) on petrol from October 2020 to October 2021 was unchanged at INR 32.9/l until the reduction by 15 percent to INR 27.90/l but value added tax (VAT) levied by the state government increased by 35 percent from ₹17.71/l to ₹23.99/l in Delhi. For diesel excise has remained unchanged at INR 32.83/l until it was reduced by 31 percent to INR 21.80/l on 4 November 2021, but VAT was also reduced by 22 percent from INR 16.26/l to INR 12.68/l in Delhi in the same period. Trends in Excise and Value Added Tax In 2015, global oil prices fell to around US $40/barrel (b) following OPEC (Oil Producing and Exporting Countries) decision spearheaded by Saudi Arabia, not to reduce oil output despite an increase in tight oil production from the USA. This protected market share of OPEC countries at the expense of oil revenue. The fall in global crude oil prices provided an opportunity to the Indian government to increase taxes on petrol and diesel. Changes in crude prices are not passed on to the consumer and, therefore, any fall in crude prices could be filled up by taxes by the government. For every US $1/b fall in the crude price, the government can increase taxes by about INR 0.5/l without any change in the retail prices and the government has exploited this opportunity since 2015 to raise revenue. Between March 2014 and October 2021, the excise on petrol charged by the central government increased by over 200 percent and the excise on diesel by over 600 percent. The VAT on petrol in Delhi increased by about 97 percent and that on diesel by about 118 percent in the same period. Other states also increased VAT substantially in this period. Central excise revenue from oil increased by over 163 percent from INR 1.72 trillion (US $23 billion) in 2014–15 to over INR 4.5 trillion (US $60.2 billion) in 2020-21. As most of the excise duty is charged as special or additional cess, which is not shared with the states, almost all the sum collected as excise on petrol and diesel goes to the central government. In the same period (March 2014-October 2021), VAT revenue from oil products increased by over 35 percent from over INR 1.6 trillion (US $21.4 billion) to over INR 2.1 trillion (US $28 billion). The low crude price window that allowed the government, both at the centre and the state, to raise tax revenue appears to be closing now that crude prices are demonstrating a steady upward trend.
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