The central government has increased the excise duty on petrol and diesel by Rs 3 a litre each, but prices of these fuels will still fall because of a significant decline in crude oil rates.

Excise duty hike of Rs 2 per litre each on petrol and diesel will be effective from March 14 itself, under Special Additional Excise Duty (SAED). An additional Rs 1 per litre will also be hiked for both petrol and diesel under Road and Infrastructure Cess (RIC), the government said, CNBC-TV18 reported.

CNBC-TV18 quoted unnamed sources in the finance ministry as saying the prices of petrol and diesel have reduced despite the government raising SAED and RIC by Rs 3 per litre. This increase is "a measure of fiscal prudence," the sources said.

The revised prices for petrol per litre in metros are as follows: Delhi (Rs 69.87), Kolkata (Rs 72.57), Mumbai (Rs 75.57) — all down by Rs 0.13 — and Chennai (Rs 72.57), down Rs 0.14.

The revised prices for diesel per litre in metros are as follows: Delhi (Rs 62.58), Kolkata (Rs 64.91) — a decline by Rs 0.16, Mumbai (Rs 65.51) — and Chennai (Rs 66.02), down Rs 0.17.

The excise duty hike is expected to help the government collect nearly Rs 2,000 crore, according to the sources. The government is likely to bring the revised duties to parliament on March 16.

Government sources said the calibrated increase in duty rates would provide much-needed resources for infrastructure and other developmental items of expenditure keeping in view the present fiscal position. Further excise hikes would likely be dependent on price movements.

While the benefit of reduction of crude prices in the first quarter of this year has significantly gone to the consumer, the government has taken this step of increasing duty to raise some revenue in view a tight fiscal situation. This would help in generating resources for the development of infrastructure.

Prices of petrol and diesel have already fallen by more than Rs 6 per litre since the second week of January.

Crude prices have been falling sharply in recent months. The fall accelerated when earlier this week Saudi Arabia ratcheted up efforts to squeeze Russia's Urals oil grade out of its main markets by offering its own cheap barrels.

From a price of about $66/barrel (159 litres) in January the prices of crude have come down gradually to about $51/barrel in the first week of March and since then fallen sharply to $32/barrel this week.

In sync with this, the prices of petrol and diesel have also come down by more than Rs 6 a litre since January (from Rs 76.01 a litre on January 11 to Rs 69.87/litre on March 14 for petrol and from Rs 69.17 a litre to Rs 62.58 a litre for diesel during the same period in Delhi.

Source: moneycontrol.com