Had it cut excise duty on petrol, price hike could have been avoided

Though the common man has been burdened with yet another petrol price hike — the fourth consecutive exercise this year — the Finance Ministry has played spoilsport in any attempt to provide relief to the aam aadmi, refusing to slash customs and excise levies on the fuel.

Officials in the Petroleum Ministry said it had represented to the Finance Ministry time and again the need for juggling the excise and customs levies but the effort has come a cropper. The Finance Ministry had been acting very “stubborn” and repeated meetings between Petroleum and Finance Ministers S. Jaipal Reddy and Pranab Mukherjee failed to resolve the issue.

According to the Petroleum Planning and Analysis Cell (PPAC), working under the Ministry, the government of India levies Rs. 14.35 paise a litre on petrol — a basic customs duty of Rs. 6.35, a special additional excise duty of Rs. 6 and an additional excise of Rs. 2. “Had the Finance Ministry agreed to cut even Rs. 5 per litre in the shape of excise, it would not only have given relief to the common man but also prevented the latest hike. But the Finance Ministry has refused to budge, leaving the loss-making oil marketing companies (OMCs) with no option but to hike the prices in line with the rising crude prices at the international level.”

On the other hand, diesel attracts only a levy of Rs. 2 a litre in the form of an additional customs duty. The latest PPAC report suggests that petrol sales growth dropped below that of diesel in April-August 2011 after a gap of six years. The negative growth in the sale of passenger vehicles and the high retail price of petrol have taken their toll on petrol sales — a growth of only 4.5 per cent during August 2011.

Rupee depreciation

The average price of the Indian basket of crude, which was $85.09 a barrel in 2010-11, has now increased by 30% and the average price in the current financial year is around $110. To make matters worse, the rupee has depreciated from Rs.45/$ to over Rs.49/$ in the recent months. The under-recoveries of the OMCs increase by about Rs. 8,000 crore annually on account of depreciation of every Re.1.

The officials said that despite the recent hikes in the prices of the three sensitive petroleum products and reduction in customs and excise duties, the OMCs were incurring an under-recovery of Rs.8.58 a litre on diesel, Rs. 25.66 on kerosene and Rs. 260.50 a cylinder on domestic LPG. The total under-recovery of the PSUs on sale of the three products for the year is expected to be around Rs.1,32,000 crore compared to Rs.78,190 crore last year.

Their under-recovery for the first half of 2011-12 stood at Rs. 64,900 crore. Despite a cash support of Rs.15,000 crore from the government and a contribution of Rs. 21,633 crore by upstream oil companies, the OMCs have declared huge losses for the first half of 2011-12. The combined losses of BPCL and HPCL for the first half are more than Rs.12,000 crore. IOC is also likely to be in the red, if no further cash assistance is announced.

The crisis faced by the OMCs is evident from the unprecedented borrowings of Rs. 1,29,989 crore for working capital and dollar requirements for payment for crude import, the officials said.

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