If oil prices move up sharply in future, that might result in under recoveries in absence of timely pass through to consumers. In that scenario, Govt may have some flexibility to lower excise duty instead of passing on entirely to consumers, says K Ravichandran, Sr. VP, Co-head, Corporate Sector Ratings, ICRA.
Sr. VP, Co-head, Corporate Sector Ratings, ICRA Ltd
Latest excise duty hike on petrol & diesel and its impact on OMCs
According to ICRA assessment, the impact of hike in excise duty on petrol and diesel is largely neutral for PSU OMCs, as they were making over recoveries i.e. higher marketing margins, which in the normal course should have been passed on to the consumers by way of lower prices; however, govt might have seen an opportunity to shore up its revenues to meet its fiscal deficit targets and hence hiked the duties; moreover, consumers have also been benefited in the last couple of months through lower fuel prices; the move does not impact OMCs at the current oil prices; if oil prices move up sharply in future, that might result in under recoveries in absence of timely pass through to consumers. In that scenario, Govt may have some flexibility to lower excise duty instead of passing on entirely to consumers.
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