Finance Ministry hopes cess will not hit petroleum exports in FY23

The Centre expects that its move to impose cess on petrol, diesel and aviation turbine fuel (ATF) exports is unlikely to hit fuel exports that touched $67 billion in FY22.

“We have not taken away the entire profit margin on oil exports. So, we don’t think it will have a negative impact on petroleum exports. We hope our petroleum exports will still remain competitive. Duty hike on gold will have a positive impact on current account deficit (CAD),” a senior finance ministry official said.

The finance ministry on Friday imposed cess of Rs 6 a litre, Rs 13 per litre and Rs 6 on petrol, diesel and ATF exports, respectively, to improve domestic fuel supply and garner additional revenue.

Simultaneously, export policy conditions have also been imposed by the Directorate General of Foreign Trade (DGFT).

The fuel exporters would be required to declare — at the time of exports — that 50 per cent of the quantity mentioned in the shipping bill has been supplied in the domestic market during the current financial year.

However, this condition is not applicable to 100 per cent export-oriented units (EoUs) and units in special economic zones (SEZs).

The Union finance ministry also increased import duty on gold to 15 per cent from 10.75 per cent to curb rising imports of the yellow metal.

Former industry secretary Ajay Dua said even with the fuel cess on exports, India’s petroleum exports may not suffer since refining costs remain competitive.

“Also, with greater imports of crude from Russia at discounted prices, the headroom for a higher levy on refined petrol and other products has emerged,” he added.

After the Ukraine war broke out, private refiners like Reliance Industries and Rosneft-backed Nayara Energy were reportedly making huge profits by exporting fuel to deficit countries in Europe, the US and Australia.

The huge benefits came as Russian crude was available for them at a big discount. It was highlighted that the refiners were exporting petrol and diesel globally at prevailing prices, which are very high. India imported around 1 million barrels per day (bpd) of crude oil from Russia, up from around 840,000 barrels in May and 388,000 bpd in April.

However, Dua said the import duty on gold may not lower its import into India.

“We have a virtual insatiable appetite for it — both for domestic use as well as for export of jewellery,” he said.

Aditi Nayar, chief economist at ICRA, said the recent measures taken by the government, particularly the import duty on gold, should help prevent the current account deficit from crossing 3 per cent of GDP. “This will also reduce the depreciation pressure on the rupee,” she added.

The rupee weakened against the dollar on Friday, breaching the Rs-79 mark for the first time. This comes as heavy outflows of overseas investment amid a worsening outlook on CAD prompted traders to bet against the domestic currency.

“The export duty was in response to certain refiners drying out their domestic pumps and selling abroad amid all-time high margins. Private players RIL and Nayara will be affected.

We estimate a $10 a barrel GRM (gross refining margin) hit for RIL (including SEZ unit),” said Sabri Hazarika, senior research analyst at Emkay Global Financial Services.

GRM is the amount that refineries earn by converting every barrel of crude oil into refined petroleum products.

India exported petroleum products worth $67 billion in FY22 and imported gold worth $46 billion during the same year.

During April-May, while petroleum exports shot up 94 per cent to $20.2 billion, gold imports rose 12 per cent to $6.9 billion.