How a Rs 2 hike in excise duty on petrol and diesel may impact you

The government has hiked excise duty on petrol and diesel by Rs 2 per litre each but there will be no change in retail prices as the increase will be adjusted against the price cut that was warranted because of falling international oil prices.

The excise duty on petrol was hiked to Rs 13 per litre and that on diesel to Rs 10 a litre, an official order showed. The increase in duties will come into force on April 8, it said.

While any change in taxes is normally passed on to consumers, there will be no change in retail selling price of petrol and diesel. But even when retail prices remain unchanged, the impact of an excise duty on petrol and diesel on consumers is still significant in the medium to long term.

Also read: Govt hikes excise duty on petrol, diesel by Rs 2/litre; no change in retail prices

Here’s how it plays out:

Immediate scenario: No change in retail price

If the retail price of fuel is not increased despite the excise duty hike, it usually means that the oil marketing companies (OMCs) or the government are absorbing the additional tax burden. This can happen through:

• OMCs sacrificing margins: They sell at the same price despite higher costs.

• State governments reducing VAT to offset the central excise hike.

• Subsidies or pricing controls temporarily applied by the government.

This results in no immediate price hike for consumers at petrol pumps.

Medium-term implications for consumers

Even if the pump price remains stable initially, consumers may still be indirectly affected:

1. Government revenue increases

The central government collects more from each litre of fuel sold.

This can boost public finances, allowing more spending on infrastructure or welfare — which may benefit citizens, but not uniformly.

2. Subsidy burden or oil company losses

If OMCs are absorbing the cost, it erodes their profits.

In the long term, they may compensate by raising prices later or reducing investment in infrastructure.

Also read: Cooking gas prices to go up by Rs 50 per LPG cylinder

3. Inflationary ripple effects

Fuel is a key input across sectors — especially in transport, logistics, and agriculture.

Even if retail fuel prices stay flat, costs might rise elsewhere (e.g., vegetables, groceries, services).

Businesses facing higher backend costs may pass it on to consumers.

4. Reduced fiscal space at state level

States earn revenue from VAT on fuel, calculated on the base price plus excise.

If the Centre increases excise but retail prices don’t rise, state VAT collections may fall, affecting their budget.

Bottom line

While consumers may not feel the pinch at the fuel station right away, a hike in excise duty without a retail price increase is not pain-free — it shifts the burden in more subtle, delayed, or diffused ways. It’s important to watch how long the price holds steady and whether the government uses the extra revenue to cushion inflation or invest in services.