The Government on Saturday raised excise duty on petrol and diesel by Rs 3 per litre, the highest in five years, taking advantage of the low global oil prices to boost its coffers.

However, it spared consumers from any immediate increase in retail price of the two auto fuels that may be adjusted later keeping any increase to the minimum. Petrol prices fell 13 paisa per litre to Rs 69.87 a litre and diesel by 16 paisa to Rs 62.58 in Delhi on Saturday.

As per a notification issued by Central Board of Indirect Taxes and Customs, special duty on petrol and diesel has been hiked by Rs 2 per litre to Rs 10 a litre and Rs 4 a litre respectively.

Additionally, road and infrastructure cess on the two products has also been raised by Rs 1 per litre to Rs 10 per litre, effectively increasing the central duty on petrol and diesel to Rs 3 per litre. The new rates are effective from March 14.

Through this increase, the centre could gain in excess of Rs 45,000 crore of revenue for full year. But any resultant increase in retail price of the two products could have a negative impact on the economy already facing a slowdown.

A price rise in auto fuels could have a multiplier effect raising prices of several essential products and services and push up inflation. In February, the consumer price inflation has fallen to 6.58 per cent, but this could begin to rise again if petrol and diesel prices are raised.

Sources in public sector oil marketing companies said they would not pass on the entire increase in duty on petrol and diesel on their retail prices, offering some relief to consumers. But this will depend on global oil and product prices remaining subdued over a longer period.

It is learnt that oil companies have already been sounded to check any retail price rise immediately and if it is needed, then the rise should be gradual and in phases. OMCs have also been asked to absorb some rise in cost. This can be covered if oil prices keep soft and fall further as the cuts would be smaller than required.

The current increase of Rs 3 per litre in excise duty/cess is the highest in the two tenures of the NDA government. It follows a Rs 2 per litre increase in excise/cess proposed in 2019 increase in the Union Budget. Before these increases, petrol and diesel prices went for a series of nine hikes in quick sucession between 2015 and 2016. The prices, however, went down by Rs 2 per litre twice in October 2017 and again in October 2018.

At present, the total Central excise duty on petrol stands at Rs 22.98 per litre and on diesel Rs 18.83 per litre. In addition, states also levy VAT on the two products. Petrol and diesel have not been so far included under the GST.