The Hindu Business Line : Petroleum Ministry seeks excise duty cut on diesel

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New Delhi Feb. 12 To enable a reduction in fuel prices and contain inflation, the Petroleum Ministry has sought a Re 1 per litre excise duty cut on diesel. The Petroleum Minister, Mr Murli Deora, has written to the Finance Minister, Mr P. Chidambaram, asking for the rationalisation of duties on petroleum products - petrol and diesel.

If the request of the Petroleum Ministry is acceded to, then the Government could consider a cut in petrol price by Rs 2 per litre and that of diesel by Re 1 per litre. The rise in international oil prices this month has seen a decline in profits on sale of diesel. "There is a loss on diesel sale, leaving no scope of price reduction unless the Government decides to cut excise duty,'' official sources said.

For the second fortnight of January, the state-owned marketing companies are suffering under recovery of 26 paise per litre on diesel. This is the most consumed auto fuel and the under recoveries are expected to go up with hardening of crude and product prices.

The northward movement in international crude prices, which has seen Indian crude basket rise from $51.74 a barrel in the second fortnight of January to $56.18 currently, is also expected to reduce the profit made on petrol. On February 9, the Indian crude basket stood at $56.93 a barrel.

Based on the current level of prices, the annual under recoveries for 2006-07 on all four petroleum products are likely to be Rs 50,000 crore out of which Rs 29,000 crore is for kerosene and LPG alone.

The impact of downward reduction of Rs 2 on petrol and Re one on diesel, if any, will result in additional burden of Rs 1,300 crore approximately for the remaining part of the financial year. This, according to sources can be absorbed by the overall commitment of oil bond that the Finance Ministry had indicated in June 2006.

The Communist Party of India (Marxist) Politburo Member, Mr Sitaram Yechury, who met the Petroleum Minister sought reduction in prices of petrol and diesel. The Government had increased prices of petrol and diesel when international crude oil prices had gone up, he said adding that since prices have now come down, it should reduce prices of these petroleum products.

"In the forthcoming budget, the duties on petroleum products should be minimum," he said. Currently, the excise duty on diesel stood at 8.16 per cent plus Rs 3.32 a litre. Besides, the Finance Ministry is also getting increased revenues from raising cess on domestic crude oil to Rs 2,500 per tonne from Rs 1,800 per tonne previously, the official said. It is slated to get Rs 6,700 crore this year against Rs 5,100 crore previously, the incremental revenues more than compensating for the excise duty cut, he added.

The Petroleum Ministry was seeking a shift to specific duties on fuel from the current mix of ad-valorem and specific duties. The current excise duty on petrol is 8.16 per cent of ex-factory price plus Rs 13.26 a litre.

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