The Hindu Business Line : Govt plans cut in petrol, diesel duties

THE Government is considering slashing customs and excise duties on various petro-products as part of its efforts to minimise the impact of soaring international crude prices on the consumer and domestic oil companies.

While the excise duty on petrol is likely to come down from 26 per cent to 22 per cent, the duty on diesel is set to be reduced from 11 per cent to 8 per cent. The customs duty, too, is likely to be lowered from 20 per cent to 15 per cent for both petrol and diesel, according to Finance Ministry officials.

The result of all this is that the consumers will be spared a hike in prices.

In fact, if effected, the reduction in duties on petrol and diesel will lead to the oil companies overpricing consumers by around Rs 1 per litre .

These details were discussed at a meeting the Prime Minister, Dr Manmohan Singh, convened here with the Finance Minister, Mr P. Chidambaram, and the Petroleum and Natural Gas Minister, Mr Mani Shankar Aiyer.

The reduction in excise duties, if effected, will cause the exchequer a loss of around Rs 2,500 crore in the case of diesel and Rs 870 crore for petrol on a full-year basis at the current global product prices.

The cuts in customs duty will, however, not have impact on the Government revenue, as the country does not import petrol or diesel. The brunt, instead, will be borne by the domestic refiners, particularly those in the public sector, as the margins they are entitled to are linked to the differential of the customs duty on products vis-à-vis crude. With the differential shrinking, the margins will pare. The private sector refiner Reliance Industries Ltd will not be affected significantly since it sells small quantities of petrol and diesel in the domestic market.

The reduction in customs duty on diesel and petrol, if implemented, will result in corresponding losses of around Rs 3,200 crore and Rs 840 crore for the refiners in a full year.

On Monday, two rounds of discussions were held between the Petroleum and Finance Ministries on the issue of duty cuts.

It remains to be seen if the debate on duty reductions is extended to LPG and kerosene, as otherwise the Government may have to direct upstream major Oil and Natural Gas Corporation (ONGC) to share a portion of the LPG and kerosene subsidy burden borne by the public sector oil marketing companies for a second time this year.

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