Sujay Mehdudia

“Oil marketing companies are not in a position to absorb the incidence of increased taxation”

Pranab indicates that the era of issuing oil bonds over; cash subsidy will be given from the budget

NEW DELHI: With Finance Minister Pranab Mukherjee tinkering with the customs duty and excise structure, the oil marketing companies (OMCs) have increased petrol and diesel prices by Rs. 2.71 and Rs. 2.55 a litre respectively with effect from midnight on Friday night.

The OMCs “are not in a position to absorb the incidence of increased taxation and are passing it on to consumers, resulting in an increase in petrol and diesel price,” Petroleum Secretary S. Sundareshan told journalists here after consultations with Petroleum and Natural Gas Minister Murli Deora.

The hike also indicates that the Kirit Parikh Committee report has been put on the hold. It recommended that petrol and diesel prices be decontrolled. On the Committee report, which also recommended a steep hike of Rs. 100 a cylinder of domestic LPG and a Rs. 6 a litre increase in kerosene rates, Mr. Mukherjee said a decision on these suggestions would be taken by “my colleague, the Petroleum and Natural Gas Minister, in due course.”

Mr. Deora said the Ministry would take a view on the Committee report in a week or 10 days.

If the customs and excise duty hikes were not passed on to consumers, the revenue loss to the state-owned firms would rise by Rs. 17,240 crore over and above the Rs. 45,571-crore loss estimated for the full year on selling petrol, diesel, domestic LPG and kerosene below cost, Mr. Mukherjee said. He also indicated that the era of issuing oil bonds was over and instead cash subsidy would be given directly from the budget.

The budget proposal to raise customs duty on other specified petroleum products from five to 10 per cent would result in aviation turbine fuel (ATF) prices going up by Rs. 1,000 to Rs. 1,500 a kilolitre.

The LPG and kerosene subsidy at Rs. 3,108 crore for 2010-11 was almost unchanged from the allocation for the previous fiscal.

During the current year, the Indian Oil Corporation, the Hindustan Petroleum Corporation and the Bharat Petroleum Corporation lost Rs. 31,574 crore in revenue on selling LPG and kerosene below cost.

In spite of the Finance Minister providing oil bonds for an additional Rs. 11,845 crore, the deficit is still huge at Rs. 19,729 crore.

“In the wake of spiralling petroleum prices, the government provided full exemption from basic custom duty to crude petroleum and proportionately reduced the basic duty on refined petroleum products in June 2008. Compared to the international price of the Indian crude basket of $112 per barrel at the time, the prices are much softer at present,” Mr. Mukherjee said. With the imposition of a five per cent duty on crude import, Mukesh Ambani-owned Reliance Industries Limited’s refinery (33 million tonnes a year capacity) alone will have to bear a Rs. 5,100-crore burden.