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Petrol and diesel excise duties up, will fuel highway expansion plan

business Updated: Jan 02, 2015 10:15 IST
HT Correspondent
petrol price

The government raised Thursday excise duties on petrol and diesel by Rs 2 a litre to fund its ambitious plan to build an additional 15,000 km of highways over the next three years.

The duty hike on the transport fuels -- the third since November -- would come into effect January 2, and yield an annual revenue of about Rs 10,000 crore, sources said.

The government needs Rs 1.76 lakh crore to meet its target of building 15,000km of highways over the next three years.

Pump prices, however, will remain unchanged with oil companies deciding to absorb the hike. With global crude prices at a five-year low, Indian oil companies are placed comfortably. The duty hike has been set off against the cut in rates that followed a drop in world oil prices.

“Retail price of petrol and diesel will remain unchanged all over India despite additional excise duty of Rs 2 per litre from midnight today (Friday),” petroleum minister Dharmendra Pradhan tweeted.

The decision to open up a special fund tap came barely a week after highways minister Nitin Gadkari and finance minister Arun Jaitley discussed financing measures to fast-track road construction, vital to adding jobs and raising incomes, sources said.

The proposal to raise duty for funding the highways was also discussed during the ministers’ December 24 meeting.

The Modi government aims to build 30km of highways every day -- three times the previous United Progressive Alliance government’s target that it had failed to achieve.

Stung by muted response from private developers and looming questions over effectiveness of the much-touted public private partnership (PPP) model, plans are now afoot to move to a fully government-funded EPC (engineering procurement contract) model, a road ministry official told HT.

According to the road ministry, an additional Rs 1.76 lakh crore -- nearly six times the annual budget of rural job guarantee scheme MNREGA -- will be required over the next three years to build 15,000 km of highways.

Allocation of these resources to the road sector would also spur economic activity and employment generation, arising from the highway construction, an official said.

According to credit rating and research firm Crisil, the construction sector was the most labour-dependent among all non-agricultural sectors, requiring more than 12 people to produce Rs 10 lakh of real output.

“Given the low skill level of the workforce currently engaged in agriculture, growth in construction can help accommodate labour migration,” Crisil has said in a research report.

“Also, given the value chain and localised nature of economic activity in the sector, construction generally offers significant spin-off benefits in terms of job creation and impetus to the local economy,” the report said.

Currently, funds collected through a cess of Rs 2 per litre of fuel go for development of national highways.

The fuel cess was first introduced to fund highways during former National Democratic Alliance regime led by prime minister Atal Bihari Vajpayee. It was then that the National Highways Development Project -- one of the largest government initiatives to date to expand and upgrade the capacity of the country’s shambolic road network -- was launched.

At present, projects worth Rs 1.28 lakh crore are languishing for either want of funds or failure to get various regulatory clearances.