Oil Marketing Companies (OMCs) are up in the green today. Indian Oil rose almost 3% to Rs.419; BPCL was up over 3% at Rs.494 and HPCL rose almost 4% to Rs.451.

The reason – the Govt yesterday announced a cut in excise duty by Rs.2/litre with effect from today. The Govt said, “this decision has been taken by the Government in order to cushion the impact of rising international prices of crude petroleum oil and petrol and diesel on Retail Sale Prices of Petrol and Diesel as well as to protect the interest of common man.”

This is for the first time since BJP came to power that it reduced excise duty on petrol and diesel after having raised it 11 times since November 2014.

Excise duty was at Rs.9.84/litre in May 2014, which went up to Rs.21.48 (rise of 226%) and that on diesel rose from Rs.3.56 to Rs.17.33 (up 486%).

Excise duty on petrol and diesel was Rs 9.48 and Rs 3.56 a litre respectively before the NDA government took office, which has gone up to Rs 21.48 and Rs 17.33 a litre, respectively, an increase of 226% and 486 percent, respectively, over the May 2014 level.

For the OMCs – this small duty reduction will have a marginal upside on the marketing margins of oil companies, which will see a dip in losses on sale of auto fuels. Will this mean they will transmit the lower duty benefit to customers? Unlikely.