The union government's decision to raise excise duty on petrol and diesel by Rs 1.50 a litre will generate about Rs 110 billion additional revenue for the government this fiscal, says India Ratings & Research (Ind-Ra).

The indirect tax revenue collection of the government this fiscal has been tepid and the fiscal deficit during the first six months of FY15 has already reached 83%. The government had budgeted 20% growth in indirect tax collection in FY15. The government, amid stressed finances with the price of Indian crude basket falling to USD 78.92 a barrel on Nov. 12, 2014 from USD 84.77 a barrel on Oct. 30, 2014, decided to shore up its revenue instead of passing the benefit to consumer.

The sharp fall in the global crude prices has resulted in the public sector oil marketing companies making over-recovery on the sale of petrol and diesel lately. This prompted the government to not only deregulate the diesel prices but also pass on the benefit to consumers. Over the past two months, petrol prices for consumers have fallen up to Rs 11 a litre and diesel prices up to Rs 5.6 a litre, depending on the city/state across the country. We expect the diesel deregulation to bring the oil subsidy down by Rs 150 billion.