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Fuel price hike: Govt mulls duty cuts

business Updated: Jan 24, 2008 13:45 IST
Santosh Menon

India may consider cuts to government tax levies alongside a rise in fuel prices to compensate state-run oil firms reeling under millions of dollars of daily losses, Petroleum Secretary MS Srinivasan said on Wednesday.

However, a decision on raising administered retail prices for petrol and diesel is unlikely before next month as a group of ministers that is expected to decide on the issue cannot meet before that, he said.

Srinivasan, the most senior official in India's oil ministry, told Reuters in an interview in London that his ministry's proposal to the ministerial panel included a cut in the excise duties on petrol and diesel along with a price rise.

The cut in duties, which rank among the highest in the world at 52 per cent for petrol and 34 per cent for diesel, would help cushion the blow for retail consumers and alleviate the finances of state-run oil firms that have been selling fuel below cost.

Under the proposal, the state oil firms will get to keep the proceeds from the duty cuts to compensate them for their losses.

Srinivasan said the so-called "under-recoveries", the amount oil companies should be collecting from consumers, were estimated to be around 750 billion rupees for the year to March 2008.

A one rupee cut in the excise duty on petrol will fetch the state oil firms 10 billion rupees between them to keep, while a rupee cut in the diesel levy could mean a windfall of 48 billion rupees.

Daily losses

India caps prices of widely consumed fuels to protect the poor and keep inflation under control, and has not increased prices for more than 18 months. This period has seen crude oil prices jump to record highs above $100 a barrel, saddling state oil firms with millions of dollars of daily losses.

India's crude basket has risen by about 170 per cent since April 2004, jumping from $32.37 a barrel to $87.17 on January 16, but retail prices of petrol have gone up by just 29 per cent and those of diesel by 40 per cent.

Raising fuel prices risks adding to inflationary pressures and triggering protests from Communist allies who provide the ruling Congress-led coalition with a parliamentary majority.

A rise in prices also carries significant political risk with state and national elections due this year and next.

A group of ministers headed by Foreign Minister Pranab Mukherjee met last week to discuss a possible price rise, but the meeting broke up without a decision.

Srinivasan said a meeting was now only likely next month as many ministers were out of the country and were due to return only at the month end. The panel's suggestions will have to be agreed by the cabinet.

India's last fuel price increase was in June 2006, when retail petrol prices went up by 9.2 per cent and diesel by 6.6 per cent to stem losses at state firms after being frozen for nine months.

Senior oil ministry officials were scheduled to travel overseas to promote India's latest auction of oil and gas assets later in the week, he added.