Government Faces Potential Revenue Shortfall of Rs 1.2 Lakh Crore in FY27 Amid Petrol and Diesel Excise Duty Reductions

Revenue Impact of Excise Duty Cuts on Petrol and Diesel

Summary

The Indian government is expected to face a significant revenue loss of over Rs 1 lakh crore in FY27 due to the reduction in excise duty on petrol and diesel, announced on March 26. This estimate assumes no further changes in excise duty rates.

Revenue Loss Calculation

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The revenue loss is estimated to be Rs 450 crore to Rs 500 crore per day, based on current consumption levels of 450 to 600 million litres of petrol and diesel per day. Annualizing this, the revenue loss is estimated to be Rs 1.6 lakh crore to Rs 1.8 lakh crore.

Full-Year Impact

India consumes approximately 175 billion litres of auto fuel per year, comprising 115 billion litres of diesel and 60 billion litres of petrol. A Rs 10 per litre excise cut results in a revenue loss of Rs 1.75 lakh crore, with Rs 1.15 lakh crore attributed to diesel and Rs 60,000 crore to petrol.

Fiscal Trade-Off

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

The government has taken a huge hit on its taxation revenues to reduce losses of oil companies, with approximately Rs 24 per litre for petrol and Rs 30 per litre for diesel. To mitigate this impact, an export tax has been levied on petrol and diesel exports, with rates of Rs 21.5 per litre for diesel and Rs 29.5 per litre for jet fuel.