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IOC chief moots price stability mechanism

Our Bureau

India's exposure to the international market is high since it imports 70 per cent of its crude oil requirement. According to Mr Ramachandran, the Fund could compensate oil companies for keeping consumer prices low during high volatilities.

New Delhi , Nov 24

PRICES of mass consumption petro-products petrol and diesel are currently reviewed every fortnight, creating price fluctuations at short intervals. To bring about a stable price regime, the Chairman and Managing Director of Indian Oil Corporation (IOC), Mr M.S. Ramachandran, today suggested the setting up of an Oil Stabilisation Fund.

Speaking up at the World Economic Forum here today, Mr Ramachandran said, "If you want stability in prices of sensitive petroleum products such as petrol and diesel, a fiscal mechanism of insulating domestic market from vagaries of international oil market will have to be developed."

India's exposure to the international market is high since it imports 70 per cent of its crude oil requirement.

According to Mr Ramachandran, the Fund could compensate oil companies for keeping consumer prices low during high volatilities. On the other hand, oil companies add to the fund corpus when the prices fall, though the consumer prices do not change. This model is practised in South Korea.

Alternatively, he mooted the Malaysian model of a fixed duty regime. Here, the customs and excise duties change with change in international price so as to keep domestic market unaffected.

In Malaysia, customs and excise duty are cut when global prices rise and they are increased when prices are on a decline, thereby leaving domestic prices unchanged.

The IOC chief mooted a shift from the prevailing ad valorem system to fixed rates of duties. In the case of the ad valorem system (rate based), when international prices rise, the customs duty collection increases and conversely, when the product price drops, the duty collection reduces.

This creates uncertainty on the tax inflows. In case of fixed rates, the revenue collection is based on the volume of imports and here there is certainty on the tax collection front.

Speaking at the occasion, Mr N.K. Singh, Member, Planning Commission, said that India urgently needed an integrated energy policy that addresses the issues of fuel cost and fuel options.

"We are in the process of setting up a National Energy Institute that will address the needs of energy policy," he said.

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