OMCs' under-recoveries to exceed Rs. 40,000 cr.

Taxation of petroleum products aggregates 132 p.c. of basic price

Special Correspondent

NEW DELHI: The Central Government's current petro pricing policy has proved to be so ad hoc and causal with only one principal in mind consumer price and its anticipated fallout will be so massive as to shoot up the under recoveries of oil marketing companies (OMCs) from the present level of Rs. 15,300 crore to Rs. 40,000 crore by the end of fiscal 2005-06, according to an industry study.

This will be particularly so because the chances of global crude prices coming down sharply look remote and unlikely, says a paper brought out by the Associated Chambers of Commerce and Industry of India (Assocham) on "Oil sector-a round-up: Does the policy framework of India ensure oil security?"

The paper warns that if distortions and inadequacies in the petro price mechanism and its existing tax structure are not corrected forthwith, the resultant chaos is certain to hurt the long-term health of the economy.

Releasing the paper, the Assocham President, Mahendra K. Sanghi, reminded that when the petroleum sector was deregulated in 1997, it was decided that subsidy in domestic kerosene for supply to the public distribution system would be 33 per cent and for domestic LPG 15 per cent.

At present, the estimated subsidy for kerosene is Rs. 11.45 per litre (against a price of Rs. 9.02-estimated subsidy 127 per cent) and for LPG cylinder Rs. 92 (32.67 per cent).

On account of this, the under-recoveries of OMCs have been estimated at Rs. 15,300 crore during the first five months of 2005-06 (April to mid-August).

The taxation structure for petroleum products in terms of customs, excise and state levies amounted to 132 per cent of the basic price of the product.

Among the developing countries, India has one of the largest shares of taxes in the retail-selling price.

For example, in Delhi out of the retail price of petrol, 57 per cent is tax component, which is 35 per cent in the case of diesel. Sales tax on diesel is 12.5 per cent in Delhi but 37.97 per cent in Mumbai. During 2004-05, the Centre and the States collected a gross revenue of Rs. 1,20,946 crore from petroleum sector out of which the share of the Centre was Rs. 77,692 crore and the remaining portion went to the States.

Glaring inaccuracies

The glaring inaccuracies in the pricing of petroleum products, particularly of petrol, LPG and kerosene until remain unscrapped and rationalisation in taxing part remains to be half done, the OMCs will continue to suffer losses and their net recoveries will fatten much more and go beyond Rs. 40,000 crore in the subsequent year after the current fiscal.

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