India has tax buffer to avoid retail fuel price hike up to $110 a barrel: Report

NEW DELHI: India still has a meaningful tax buffer to absorb crude shocks, as excise duties of Rs 19.9 per litre on gasoline and Rs 15.8 per litre on diesel can be cut to protect retail prices until about $110 per barrel crude, a report said on Monday.

The report from Elara Capital said retail gasoline and diesel prices "could be fully protected through excise cuts until roughly $110/bbl, beyond which price hikes on diesel and gasoline would become inevitable". It estimated India can absorb a $40-45 crude shock via tax, adding that beyond $110/bbl, the burden would shift from the government to consumers, the report added. For every $10 per barrel rise in crude, oil marketing companies' diesel and gasoline margins would fall by Rs 6.3 per litre and LPG losses would rise by Rs 10.2 per kg.

The dynamics implies about Rs 328 billion in annual LPG under?recovery, the report further said.

Gross refining margins of OMCs could rise by about $5/bbl for every $10/bbl crude move, but that would not fully offset their marketing and LPG losses, the report added.

At current Brent of $100/bbl, earnings could drop sharply around 90-190 percent absent retail price hike, tax cut, or higher LPG subsidy, it said. (IANS)

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