LPG Prices Surge Amid Government Duty Hike
In a significant move, the Indian government announced a rise in household LPG (liquefied petroleum gas) prices on Monday, affecting all categories, including subsidized refills for low-income families under the ‘Ujjwala’ scheme. Additionally, the government increased the special additional excise duty (SAED) on petrol and diesel by ₹2 per litre, quashing hopes for a reduction in fuel prices despite a decline in global oil rates.
Price Adjustments for LPG Consumers
Starting Tuesday, Ujjwala beneficiaries in Delhi will see the cost of a 14.2-kg LPG cylinder increase from ₹503 to ₹553. For general consumers who do not receive subsidies, the price will rise from ₹853 to ₹1,028.50. Prices in other states will vary based on local tax rates. This adjustment marks the first change in LPG pricing since March 2024, when prices were reduced by ₹100 per cylinder.
Oil Minister Hardeep Singh Puri justified the price hike, citing a ₹41,338 crore deficit faced by oil marketing companies due to rising benchmark rates in the current fiscal year. He assured that Ujjwala consumers would continue to receive subsidies, and the increased refill prices are projected to generate ₹5,000-7,000 crore for state fuel marketers to cover losses on LPG.
Implications of Increased Excise Duty
The government’s decision to raise the SAED on petrol and diesel is expected to yield approximately ₹32,000 crore for the exchequer. This revenue can be utilized to offset losses incurred by state fuel retailers on LPG sales. Following the hike, the SAED on petrol will now be ₹13 per litre, while diesel will be taxed at ₹10 per litre.
Despite the increase in duties, experts, including ICRA’s Prashant Vashisht, believe that oil companies will maintain healthy marketing margins. The anticipated stability in crude oil prices, influenced by ongoing geopolitical tensions, is expected to mitigate the impact of the duty hike on consumer fuel prices.
Future Prospects for Fuel Prices
Minister Puri expressed optimism that petrol and diesel prices could still see reductions if crude oil prices remain low. The government has a history of adjusting excise duties on fuel to capitalize on fluctuations in global oil prices. Between November 2014 and January 2016, the government raised excise duties on petrol and diesel nine times to benefit from falling oil prices.
The recent duty increase effectively absorbs a ₹2 per litre gain that oil companies would have realized due to declining crude prices, which have dropped from $77 per barrel in March to around $63-64, the lowest in four years. By adjusting the SAED rather than the basic excise duty, the government has ensured that it retains the full revenue without sharing it with state governments.
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