Special Correspondent

Maharashtra agrees to adjust sales tax on oil

Deora touring major cities to explain Centre's decisionOil majors will be impaired permanently if prices are not hiked: Secretary

MUMBAI: In response to his appeal to the State governments, Maharashtra has agreed to adjust the sales tax on petroleum products, Petroleum Minister Murli Deora said on Friday. He told the media here that he had spoken to Chief Minister Vilasrao Deshmukh on Thursday and was assured that the State government would forgo the additional sales tax revenue, resulting from the higher prices of petroleum products.

The Minister said he hoped that other States would follow Maharashtra's example.

Mr. Deora, accompanied by Petroleum Secretary M.S. Srinivasan, is travelling to metros to explain the government's decision to raise oil prices. "No one can guarantee and anything can happen," he said to a question whether the government was firm on the price increase. He reiterated, however, that it had no option but to increase prices.

Sharing the dais with representatives of all oil majors, Mr. Deora and Mr. Srinivasan put forward a detailed explanation justifying the price hike.

The Petroleum Secretary said the price of crude, which now stood at $67.5 a barrel for the Indian basket, was inching towards $70 and could hit $80-85 in the next six months. "This would be catastrophic for us" and would tell on the health of the economy."If prices were not revised, oil companies would be in the red to the tune of Rs. 73,000 crore, a burden that would permanently impair them, he said.

Mr. Srinivasan confirmed that the increases decided by the government now would remain unchanged until the price of crude crossed $70 a barrel. But once it exceeded that level, the oil companies would be permitted to undertake "autonomous price adjustments" every month for every dollar increase in the crude price. Thus, for every one-dollar increase after the price crossed $70 a barrel, the companies could charge an additional 39 paise a litre for petrol, 30 paise for diesel, 36 paise for kerosene and 67 paise a cylinder for LPG. If the prices were calibrated at regular intervals this way, no one would feel the pinch, he said.

Only 16 per cent of the burden of the increase in crude price was being passed on to consumers, said Mr. Srinivasan. The rest would be borne by the government although upstream companies such as the Oil and Natural Gas Corporation would have to take some of the load. This would mean a slight curtailment of their future plans for oil exploration abroad.

The State governments would have an important role to play, said Mr. Srinivasan. While acknowledging that sales tax on petroleum products was an important part of their income, he said, "If only State governments were considerate enough, they could share a small part of the burden and pass on the benefit to consumers." Maharashtra was adjusting the sales tax rate so that "it becomes revenue neutral."

"Enabling the population to access affordable energy at all times" is the mantra of the government, said the Petroleum Secretary. That was why the prices of kerosene and LPG had remained unchanged. People did not realise that the primary use of kerosene in rural areas was for lighting. But the compassionate approach towards the poor "might restrict our capacity to manoeuvre" in the future, he said.

To check diversion of kerosene meant for BPL families, the government was running on a trial basis a smart card scheme in one backward district.

This would be monitored over six months before the scheme was introduced in the whole country.

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