Duty cut may soften blow as Rs 3 fuel price hike looms
Be prepared for a hike in petrol and diesel prices. The Empowered Group of Ministers on fuel pricing under Pranab Mukherjee is meeting on Wednesday to clear a proposal to increase auto fuel prices by upto Rs 3 per litre. Anupama Airy & Gaurav Choudhury report.business Updated: May 09, 2011 02:15 IST
Be prepared for a hike in petrol and diesel prices. The Empowered Group of Ministers (EGoM) on fuel pricing under Pranab Mukherjee is meeting on Wednesday to clear a proposal to increase auto fuel prices by upto Rs 3 per litre.
The hike might well have been in the range of Rs 4 to 5 per litre, had petroleum minister Jaipal Reddy not put his foot down. Senior petromin officials said he is pressing for a simultaneous reduction in customs and excise duty on petroleum products and crude oil, so that the price hike is minimised.
"Both the price hike issue and the reduction in duties on oil and oil products is part of the EGoM’s agenda this week," the official said, adding that Reddy has already spoken on this issue with Mukherjee.
For the fortnight ending of April 30, crude oil prices were ruling at around $119 a barrel and oil marketing companies’ losses have climbed to Rs 8 a litre for petrol and Rs 18 a litre for diesel. Crude oil prices have sunk more than $10 last week, but losses on domestic sales continue to be high.
"As it is not possible to pass on a hefty increase in auto fuel prices, especially diesel — which directly impacts inflation — the finance ministry has to look at reducing duties," the official said, adding the ministry has demanded abolishing the 5% customs duty on crude oil."The 5% customs duty has fetched the government sufficient revenues in the six months when international crude oil prices attained new peaks," he said. "Also, the Rs 1 per litre increase in excise duty on petrol and diesel (introduced in the Budget) needs to be reversed."
With the high rate of inflation emerging as a prime concern for the government, a possible cut in the prevailing duties could reduce the quantum of hike that is needed to be passed on to the consumers. Any hike in diesel price hits inflation as it impacts food and commodity prices.
A Rs 1 cut in excise duty on petrol and diesel would result in a revenue loss of an estimated Rs 8,000 crore (about Rs 4,000 crore each for petrol and diesel).
While an one percentage point cut in customs duty in crude oil would result in an estimated revenue loss of about Rs 3,000 crore, a 5% reduction in customs duty on crude will result in a revenue loss of an estimated Rs 15,000 crore.