In what can be seen as its latest stand on the possibility of the price hike of KG Basin gas explored by Reliance Industries Ltd (RIL), the finance ministry has suggested that any rise will directly impact the revenues of the government. The ministry, in a written note to the parliamentary standing committee on finance, has pointed out that most of the gas being produced goes directly to fertiliser and power plants. “Fertiliser subsidy for urea, at present compensates any increase in fertiliser cost due to feed stock prices. Further, power produced is also being subsidised by state government. Thus any increase in gas price will directly impact the revenues of government,” the note maintained.

The finance ministry’s response — submitted to the panel in December—comes amid the Centre’s desperate efforts to cut the subsidy bill on fuel and other areas that has severely affected the fiscal management. Several opposition MPs had alleged revenue loss of the government due to low production of gas in the KG D6 Basin during a previous meeting of the panel. The finance ministry, however, has ruled out any revenue loss due to the low production of gas from the KG D6 basin.

The ministry’s note added that the RIL is already not paying any income tax on the profits generated from the production of gas as it is claiming deductions u/s 80 IB(9) of the Income Tax Act. On the indirect tax front too, the ministry has pointed out that natural gas is fully exempted from basic excise duty.

In 2010, RIL represented to the centre that it has an offer for purchase of gas at higher rate that the rate approved by the Empowered Group of Ministers (EGoM).

While RIL sought a hike in gas prices, the EGoM asked it to stick to the price mechanism that had been fixed for five years.