The Hindu Business Line : Allocation of fuel cess

Following differences, the Government has set up a Group of Ministers to work out a formula for the allocation of additional fuel cess. This would pave the way for an amendment to the existing Central Road Fund Act, 2000.

THE Government has set up a Group of Ministers (GoM) to work out a formula for the allocation of the additional fuel cess of 0.50 paise per litre each on petrol and diesel levied and collected since April 1, 2003, for road development in the country following differences among the Department of Road Transport and Highways, the Railway Ministry and the States on the pattern of distributing the funds.

The GoM's recommendation would pave the way for an amendment to the existing Central Road Fund Act, 2000 which sets out the allocation pattern for the Re 1 per litre cess each on petrol and diesel collected since June 2, 1998 and March 1, 1999 respectively for funding the highway development projects.

As per the formula set out by the CRF Act, 50 per cent of the Re 1 cess collected on diesel would be allocated to the Ministry of Rural Development for the construction of rural roads. The balance and the entire Re 1 cess on petrol would be distributed in the ratio of 57.5 per cent for the development and maintenance of National Highways, 12.5 per cent to the Railway Ministry for the construction of rail over- under-bridges, and 30 per cent to the States for the development of State roads.

With the Centre taking up more National Highway development projects necessitating incremental funds through cess receipts, the Department of Road Transport and Highways has made out a case for adopting a different formula for distributing the additional cess of 0.50 paise per litre each on petrol and diesel other than the one spelt out by the CRF Act for allocating the Re 1 per litre cess each on petrol and diesel.

Accordingly, the Department of Road Transport and Highways has suggested that 50 per cent of the additional cess of 0.50 paise per litre on diesel (that is, 0.25 paise per litre) be allocated exclusively for rural roads. The balance 50 per cent of the diesel cess (0.25 paise per litre) and the entire additional cess of 0.50 paise per litre on petrol is to be given to the Department of Road Transport and Highways to be utilised solely for the development of the National Highways.

A proposal in this regard was recently taken to the Cabinet Committee on Economic Affairs (CCEA). "But with the Railway Ministry and the States opposing the new formula proposed by the Department of Road Transport and Highways, the CCEA has referred the matter to a GoM," a Highways Department official said.

Though the additional cess of 0.50 paise per litre each on petrol and diesel have been levied and collected since April 1, 2003, not a single paise has been released so far from this corpus (estimated to mop up Rs 2,600 crore annually) in the absence of a formula on allocating the funds to the beneficiaries.

In fact, the Department of Road Transport and Highways has identified the non-receipt of additional cess funds as one of the main constraints, among a slew of other factors, in the progress of the National Highways Development Project (NHDP) since this has already been factored into the financing of the ambitious highway development programme.

It has urged the Finance Ministry to immediately release funds from the additional cess receipts, as per the existing formula under the CRF Act for 2003-04 and, subsequently, according to the amended formula worked out by the GoM.

The National Highway Authority of India (NHAI), which is entrusted with the task of implementing the NHDP, has borrowed funds from the market by securitising the cess receipts. This means that the lenders will have the first charge on the cess receipts flowing to the NHAI. Apart from lack of funds to take up more projects, the non-transfer of additional cess funds would hit the repayment plans of the NHAI, the official said.