With the surge in global crude oil and fuel prices straining oil marketing companies’ (OMCs) finances, the government has slashed the Special Additional Excise Duty (SAED) on petrol and diesel by Rs 10 per litre each on Friday (March 27). The move is aimed at keeping the retail prices of the two fuels in check amid the global price shock.Despite bearing high losses on sales of the two fuels due to high international prices, public sector OMCs had not raised the retail prices of petrol and diesel. Additionally, the government has also imposed duties on exports of diesel and aviation turbine fuel (ATF) with the objective of ensuring adequate availability of these fuels in the domestic market.The excise duty cuts mean that the levy on petrol now stands at Rs 3 per litre, and nil on diesel, which means that the Central government has relinquished a large part of its future revenue from the retail sales of the two fuels to provide some respite to the OMCs. The other option would have been for the OMCs to hike fuel prices, which would have had an inflationary impact on the economy, or continue absorbing extremely high international prices that were already impacting their financial health.The total excise duty was Rs 21.9 per litre on regular petrol, and Rs 17.8 per litre on regular diesel, with Special Additional Excise Duty (SAED) being the biggest component in the excise duty structures for both fuels. The other components include basic excise duty, agriculture infrastructure and development cess, and road and infrastructure cess. With the SAED cuts, total excise duty on petrol now stands at Rs 11.9 per litre, while on diesel, it is Rs 7.8 per litre.As for export duties, a levy of Rs 21.5 per litre has been imposed on diesel, and Rs 29.5 per litre on ATF. In addition to disincentivising the exports of these fuels in the current scenario, these export levies will also help the government earn some revenue to partly cover the revenue foregone due to the excise duty cuts.Heavy under-recoveries, govt revenue impactAccording to Petroleum Minister Hardeep Singh Puri, the OMCs were incurring losses of Rs 24 per litre on petrol sales and Rs 30 per litre on diesel sales due to the surge in international crude oil prices. With the excise duty cuts, the government will now share their burden without the need to immediately hike retail fuel prices.Story continues below this adInternational oil prices are currently about 50% higher than the levels on February 27, a day before the US and Israel attacked Iran, setting the West Asia war in motion.Explained | One-third of India’s strategic petroleum reserves are empty: Why this matters for fuel securityThe excise duty reduction is expected to absorb around 30-40% of the annualised losses of OMCs on petrol and diesel sales at current prices, while the annualised fiscal hit to the government due to this burden sharing would be around Rs 1.55 lakh crore, according to Madhavi Arora, Chief Economist, Emkay Global. According to a note by ratings agency ICRA, a Re 1-per-litre cut in excise duty would result in a revenue shortfall of Rs 15,000-16,000 crore per year for the government; a Rs 10-per-litre cut would lead to a shortfall of Rs 1.5-1.6 lakh crore.ICRA also said that if crude oil prices average at $100-105 per barrel, the OMCs would incur a loss of Rs 11 per litre on petrol and Rs 14 per litre on diesel.Stress on fuel retailers’ finances was already visible. The public sector OMCs recently hiked premium petrol and industrial diesel prices, while keeping unchanged the retail prices of regular petrol and diesel, which are used by the vast majority of Indians.Story continues below this adPrivate sector fuel retailer Nayara Energy, however, raised petrol prices by Rs 5 per litre and diesel by Rs 3 per litre to partly pass on the higher input costs to consumers. Nayara, while being the largest private sector fuel retailer in India, has a share of just about 7% in India’s fuel retail network; the three public sector OMCs have a cumulative share of 90% and effectively control fuel pricing in India.“Government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies (approximately 24 Rs/litre for petrol and 30 Rs/litre for diesel) at this time of sky high international prices are reduced. At the same time, export tax has been levied as international prices of petrol and diesel have skyrocketed and any refinery exporting to foreign nations will have to pay export tax. My gratitude to Hon’ble PM Narendra Modi Ji and Hon’ble FM @nsitharaman Ji for this very timely, bold and visionary decision!” Puri said in a post on X.“International crude prices have gone through the roof in the last 1 month, from around 70 dollars/barrel to around 122 dollars/barrel. Consequently, petrol and diesel prices for consumers have gone up all over the world. Prices have increased by around 30%-50% in South East Asian countries, 30% in North American countries, 20% in Europe and 50% in African countries. The Modi Government had two choices- either increase prices drastically for citizens of Bharat as all other nations have done or bear the brunt on its finances so that Indian citizen is insulated from international volatility,” Puri said.‘No lockdown proposal; adequate fuel stocks available’Amid reports of panic buying of petrol and diesel coming from various parts of the country, Puri said that rumours of a lockdown in India are “completely false”, and there is “no such proposal under consideration by the Government of India”. As rumours of a lockdown and fuel shortage spread, long queues were seen at fuel pumps in some parts of the country.Story continues below this adExplained | Difference between LPG and LNG, and why West Asia war affected LPG supply more“The global situation remains in flux, and we are closely monitoring developments across energy, supply chains, and essential commodities on a real-time basis. Under the leadership of Hon’ble PM @narendramodi Ji, all necessary steps are being taken to ensure uninterrupted availability of fuel, energy, and other critical supplies for our citizens. We are fully prepared to handle emerging challenges. India has consistently demonstrated resilience in the face of global uncertainties, and we will continue to act in a timely, proactive, and coordinated manner,” the minister said.On Thursday, the government assured that India currently has crude oil and fuel stocks to cover 60 days of consumption, and crude oil procurement for the coming two months has also been tied up, which means that the country is secure for the next few months. It said that there is no shortage of petrol and diesel anywhere in the country, and urged citizens not to fall prey to “a deliberately mischievous, coordinated campaign of misinformation that is being carried out to spread unjustified panic”.The government also said that there is no liquefied petroleum gas (LPG) shortage for households, and the supply situation is improving with additional domestic production of the fuel, along with additional LPG cargoes coming in from non-West Asian suppliers. It said that around one month of LPG supply is “firmly arranged” through imports from non-West Asian suppliers, and additional procurement is being tied up on a continuous basis. This is the first instance of the government providing crude oil, fuels, and LPG stock information since the war began on February 28.“Where isolated instances of panic buying occurred at select pumps, they were driven by deliberate misinformation spread by certain videos in social media. Despite the surge in demand on such pumps, fuel was dispensed to all the consumers and Oil company depots have been operational through the night to ramp up supplies. Steps have also been taken by Oil Companies to increase credit to petrol pumps to over 3 days from earlier allowed 1 day in order to ensure that there is no shortage of petrol and diesel at any pump due to working capital issues of pump owners,” the Petroleum Ministry said Thursday.