The oil industry is hoping that the, the Finance Minister, Mr Pranab Mukherjee, will consider reducing excise duty on diesel in his Budget for 2011-12. In the 2010-11 Budget, the excise duty on petrol and diesel was increased by Re 1 a litre taking it to Rs 14.35 and Rs 4.60 a litre, respectively.

Reduction of excise levies on diesel will correspondingly reduce subsidy and bring down the revenue loss incurred by the oil marketing companies (OMCs) for selling the fuel below the market price, without increasing the retail price.

“We currently face a situation where the Government collects excise duty on diesel and simultaneously pays subsidy to the public sector oil marketing companies to keep the consumer prices unchanged. Doing away with collection of excise duty and road cess on diesel would result in an equivalent reduction in the subsidy paid by the Government and thus, will have little impact on the Budget,” an oil company official told Business Line .

The diesel under recovery effective February 16 is Rs 10.74 a litre. The desired increase in retail price of diesel at Delhi is Rs 48.49 a litre to bring it in line with the market price. The public sector oil companies sell diesel at a Government-controlled price.

At the current prices, the under-recovery on diesel is estimated at Rs 187 crore a day or Rs 68,000 crore annually for the oil companies, which is almost one per cent of the GDP and 6.2 per cent of the Government's revenue.

With diesel consumption seeing a growth of 4-6 per cent annually, there is a need to address this issue, the official said. The oil companies are pitching for diesel deregulation on the grounds that it is feasible with minimal impact on consumer prices or Government budget.

The industry is also seeking reduction in central levies on petrol. Though the retail selling price of petrol has been deregulated, the consumer prices of the fuel are relatively high and the scope for further increase to bring the prices in line with the international price faces stiff resistance.

The oil companies still feel the need to increase petrol prices by about Rs 2 a litre. Currently, petrol in Delhi at Indian Oil Corporation outlets cost Rs 58.37 a litre.

As regards customs duty on crude oil, the industry feels customs duty collection on crude oil at the rate of five per cent yields revenue of approximately Rs 16,380 crore a year to the exchequer.

However, here again is the case where duties and subsidies co-exist, oil industry official said adding that “If the customs duty is done away with the under recovery on diesel could be brought down, while improving the protection to refineries to pre-2010 level,” the official added.

The customs duty on crude oil was reduced to zero per cent from five per cent when crude oil prices rose steadily in 2008.

However, this was reversed in the Budget of 2010-11. Now that crude oil prices are once again hovering around $100 a barrel, it is time to bring down the duty, the official said.

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