The Hindu Business Line : Duties on petrol, diesel cut

THE consumer will be spared any hike in prices of petrol and diesel following today's decision to reduce the duties on the petroproducts. In the case of LPG and kerosene, the Government does not intend to allow oil companies to raise prices, even as today's duty reductions will still leave the public sector oil companies selling these products at a loss.

As part of the duty reductions announced on Wednesday by the Finance Minister, Mr P. Chidambaram, in Parliament, the customs duty on both petrol and diesel have been brought down from 20 per cent to 15 per cent.

The excise duty on petrol has been pared from 26 per cent to 23 per cent while that on diesel has been reduced from 11 per cent to 8 per cent.

Further, the customs duty on LPG and kerosene sold through the Public Distribution System (PDS) has been halved to 5 per cent. In addition, the excise duty on PDS kerosene has been reduced from 16 per cent to 12 per cent.

The reduction in duties on petrol and diesel will raise the margins earned by the oil companies. The final consumer price will, however, be less than the market price, the `import parity' price.

Under the `import parity pricing' regime, the oil companies are compensated an amount that it would have cost to import and market the products.

The price of the two products will not be raised since the duty cuts will nudge the oil companies' remuneration back into a `band' that regulates the pricing policy of the oil companies. The public sector oil marketing companies adjust the price of the two products by a factor of 10 per cent in a pre-defined band. The band takes into consideration the global price movement over a period of time. Last week, due to the spike in global prices, the consumer price of diesel breached the band.

In the case of LPG and kerosene, the Government has restrained the oil marketing companies from raising prices. With the Left parties as their allies, the Government has little other choice. In fact, during the first quarter of the current fiscal, this resulted in the oil companies losing Rs 3,600 crore. The bill was partially shared by Oil and Natural Gas Corporation and GAIL (India) Ltd to the extent of Rs 1,200 crore. Today's duty reduction on LPG and kerosene will help reduce this burden for the rest of the year.

Last week, the band was unable to provide the oil companies adequate adjustments to make good the costs in certain products like diesel. This was due to the steep rise in crude oil in the global markets.

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