The government is considering a cut in excise duty on auto fuels with a decision likely by mid-March. Fiscal math leaves room for excise cut of Rs 8.5 per litre. At present, the net marketing margin on auto fuels is at Rs 1.28 per litre, and it may be at Rs 1.06 to 1.46 per litre on March 16, 2021, and April 1, 2021, unless price is hiked or excise duty is cut, stated a report by ICICI Securities.

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The report also estimated that if the excise duty is not cut by the end of March 2022, it will be at Rs 4.35 trillion as compared to the Budget estimate of Rs 3.2 trillion. So, according to the report, there is room for excise cut of Rs 8.5 per litre. It said even if excise duty is cut by Rs 8.5 per litre on or before April 1, 2021, it can be in line with the Budget estimate.

ICICI Securities stated that it was optimistic of excise duty cut, given the recovery in demand — auto fuel consumption in February 2021 is almost back to pre-lockdown level —, privatisation plans and inflation concerns but expects it to be more modest than Rs 8.5 per litre.

The report added that the optimism about excise duty cut also depended on net marketing margins recovering to Rs 2.5 per litre by the end of March 2022 — which may be the key for the government realising high price for stake sale in the ongoing privatisation.

During the first four years of the current government, the net marketing margin was Rs 0.96 to Rs 1.07 per litre. However, in the next two years, it was up to Rs 1.83 to Rs 2.22 per litre, stated the report, adding that the net margin was likely to be around Rs 3.14 per litre at the end of the 2021 fiscal to make up for very weak GRMs.

Price hikes were made to keep net margins at a reasonable level even when Brent surged and the rupee weakened to Rs 75 in October 2018. "Given this government’s track record, we are optimistic of net marketing margin being around Rs 2.5 per litre at the end of 2022 fiscal, which will require either price hikes and/or excise duty cuts that are not passed on,” the report said.

Excise duty was raised by Rs 13 to Rs 16 per litre on petrol and diesel through price hikes in March 2020 and May 2020.