New Delhi: Even as the government dithers on raising prices of transport and cooking fuels, it may decide to slash customs duty on crude oil by half to 2.5%, and duty on diesel and petrol by a third to 5%, to help state oil firms selling fuel below cost avoid bankruptcy.
“This reduction will help in lowering under-recoveries by Re1 per litre,” said a senior government official, who did not wish to be identified. Under-recovery is an industry term for selling refined petroleum products below the cost of buying crude oil.
Crude oil prices have more than doubled from a year ago and hit a record $135.09 (Rs5,754) a barrel on 21 May. The government’s policy of selling fuel below cost to consumers is expected to end in state-owned oil marketing firms, or OMCs, losing Rs2 trillion in 2008-09.
Besides reducing customs and excise duties, the government may increase diesel prices by Rs2 a litre, and petrol by Rs4 a litre. It may take a decision on the price increase after the Congress Working Committee, or CWC, meets on Saturday. “We are exploring all options to reduce the burden on our oil marketing companies as well as the consumers,” said petroleum and natural gas minister Murli Deora.
OMCs are already protesting the pile-up in losses and acting to counter a deepening crisis by reducing supply in some parts of the country. The country’s biggest oil-marketer Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd have started rationing or giving restricted amounts of fuel to its dealers who retail their products.
Hindustan Petroleum Corp. Ltd, taking a cue from the two other state-owned OMCs, has said it would also ration fuel by June if the government does not offer a bailout plan soon.
The oil firms currently sell petrol, diesel, kerosene and liquified petroleum gas, or LPG, at a loss of Rs16.33 per litre, Rs23.49 per litre, Rs28.72 per litre, and Rs305.90 per cylinder, respectively.
Exploring options: Minister for petroleum and natural gas Murli Deora. (Subhav Shukla / PTI)
The CWC meeting, which is likely to discuss the price hike, has been called to discuss the recent defeat of the party in the Karnataka state polls. “I have not checked the CWC agenda as yet but I believe inflation and oil prices could be taken up for discussion as well,” said Veerappa Moily, chairman of the Congress party’s media cell, and a former Karnataka chief minister.
Data released by the petroleum ministry show that India imported 11.04 million tonnes, or mt, of crude in April, compared with 10.99mt a year ago, as Indians bought more cars and ferried more goods.
The consumption is expected to swell, along with the rise in the number of middle-class Indians in the population. The demand for petroleum products grew by 6.3% to 11.241mt in April, and the country imported 2.23mt of products, a 53% jump over the same period last year.
The government is in a bind over hiking fuel prices because political parties supporting the coalition government at the Centre are strongly opposed to any increase in prices.
“Even the Left parties do appreciate our concerns and the steps that we are taking to tackle the issue,” Deora said. The Left parties have denied the oil minister’s claims.
Prakash Karat, general secretary of the Communist Party of India (Marxist), denied that the government has consulted with it on the issue. “The petroleum minister has not met any of us. We do not want to negotiate on this matter (increase in prices of petroleum and petrol products),” he told reporters at the end of the two-day central committee meeting of his party.
“However, we are prepared to discuss a cut in excise taxes and import duties. Along with the Centre, state governments should also do so and reduce their taxes,” Karat said.
Ashish Sharma and Ruhi Tiwari contributed to this story.