Story Of The Week

Budget 2015 may restore Customs duty on crude oil

Come 28th February and Finance Minister Mr. Arun Jaitley may restore Custom duty in his 2nd Budget session ever. Global crude oil prices have fallen almost 50 per cent since June 2014, the most since the 2008 financial crisis, as supplies swelled. Indian government has since then increased the excise duty on crude oil, the latest one on January 19th, 2015 being the fourth in the series. It is estimated that The four excise duty hikes will result in about Rs 20,000 crore in additional revenue this fiscal and will help the government meet its fiscal deficit target of 4.1 per cent of the GDP.

With the move of imposing a Custom duty further, might fetch the exchequer around Rs 14,000 crore next financial year and help the government improve its target of reining in the fiscal deficit at 3.6 per cent of gross domestic product (GDP) in 2015-16.


The earlier UPA govt. scrapped the Custom duty in 2011 amid high global oil prices. Currently as crude oil prices have been weakening and there is hope these will soften further, the finance ministry is considering re-imposing the duty on crude oil at a rate of three per cent.

In 2013-14, India imported 3.86 million barrels a day of crude oil, according to Reuters data. If consumption in 2014-15 remains at the same level, imports will stand at 1,409 million barrels. At $53.83/barrel for the Indian crude oil basket, the country’s total import bill will stand at about $76 billion. Three per cent of that (the likely Customs duty) comes to $2.3 billion, or Rs 14,186 crore at 61.68/dollar.

On an average, the government is estimated to collect a total of Rs 2 lakh crore a year as Customs duty. Its collections on account of the re-imposition of the duty on crude oil will be about seven per cent of its annual Customs mop-up.

Market experts confirm that reinstating the import duty on crude will not lead to under recoveries of OMCs at current crude prices and nor will the consumer be burdened with any adverse price impact.



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