Economy May 28, 2012
The government has no immediate plans to raise the retail prices of diesel, kerosene and cooking gas, but it is considering raising the excise duty on diesel cars, Oil Minister S Jaipal Reddy said today.
"I am not touching (the prices of) diesel, LPG (liquefied petroleum gas) or kerosene," Reddy said, adding, no date has yet been fixed for a meeting of a ministerial panel to review the prices of the three subsidised fuel.
State-owned oil marketing companies announced an 11 percent hike in petrol last week after a six-month freeze on a price hike, seeking to recover losses from higher global oil prices and a plunging rupee that have deepened the country's trade deficit. While the per litre diesel price in Delhi is around Rs 40, petrol costs as much as Rs 74.
Reddy said his ministry has recommended raising the factory gate tax on diesel-driven vehicles to curb the growing consumption of the fuel, currently sold at substantially cheaper prices than petrol. To discourage consumption of subsidised diesel by personal vehicle owners, the Petroleum Ministry had suggested imposition of higher duty on purchase of diesel cars.
While the Petroleum Ministry has been asking for a hike in the excise duty on diesel cars, the Heavy Industries Ministry is opposing the move.
The oil ministry has argued that the additional amount from the excise duty can be used to make good a part of the loss that retailers incur on the sale of diesel at government-controlled rates.
The Kirit Parikh Committee on Energy had also suggested a one-time additional excise duty of Rs 80,000 on diesel cars, arguing that it would offset the higher excise duty on petrol.
India needs to raise the price of diesel if it wants to lower its fiscal deficit. Oil accounts for the single largest chunk of India's imports, and is a significant contributor to both the current account deficit, as well as the pressure on the rupee.
Diesel is the most consumed fuel in the country but is sold at a discount to its imported cost. The government is providing a subsidy of Rs 15.35 a litre to oil marketing companies for selling diesel at lower than market rates.
Subsidised diesel is the preferred fuel for the transport sector (both trucks and passenger buses) and is also used in irrigation pumps and other agriculture equipment.
Luxury cars and SUVs also run on diesel and so do power generators at malls and telecom towers.
It has long been argued that the rich should not get subsidised fuel. According to Oil Ministry estimates, 15 percent of diesel consumption is accounted for by personal cars and SUVs.
Finance Minister Pranab Mukherjee in Budget 2012-13 has hiked the excise duties for petrol cars with engines under 1,200 cc and diesel cars with engine capacity under 1,500 cc, but the length exceeding four metres to 24% from 22% and a fixed duty of Rs 15,000.
Petrol and diesel driven vehicles having length exceeding four metres and engine capacity of over 1,200 cc and 1,500 cc respectively will now be charged with an ad valorem duty of 27%, instead of the earlier 22% and a fixed duty of Rs 15,000.
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