Amid Delhi slashing VAT on diesel, a top economic advisor today favoured a debate over taxes on petroleum products and called for equal opportunities for private refiners vis-a-vis state-run firms to ensure that petro prices decline in the long run.
"As far as I am concerned there is a need for a serious discussion and debate on the tax structure (on petro products)," Chief Economic Advisor Kaushik Basu told a press conference.
His remarks assume significance, as Delhi today slashed VAT on diesel from 20 per cent to 12.5 per cent. Also, Petroleum Minister Murli Deora recently asked states to streamline sales tax on petroleum products to provide relief to people affected by inflation.
"In some states, the tax is as high as 30-32 per cent, while in others it is only 10-12 per cent," Deora had said earlier this month.
Basu called for level-playing field for private refiners vis-a-vis state counterparts so that competition brings down prices in the long-run.
"If we give level playing field, (and allow) a lot of free opportunities for good private sector firms to come in, if you do that...We will become a more efficient refiner of petroleum and then we can truly speak of market price and market price will be lower once you get that competition," he said.
He said the country needs a combination of private and public players in this sector to keep the prices low.
The government's recent move to hike petrol prices by Rs 3.50 a litre by deregulating it, diesel by Rs 2 a litre, LPG Rs 35 a cylinder and kerosene Rs 3 a litre, had evoked sharp protests from the opposition.
Basu said inflation would have been much higher six months down the line had petro prices not been hiked due to higher fiscal deficit on account of larger subsidies to the oil companies.
He said the broad view is that diesel prices will also be decontrolled over a period of time.
"The broad view is that diesel will also be taken on the route of petrol towards a total decontrol. It is a hard decision," he said.
He said if diesel prices were completely put on float on the lines of petrol, its rates would have risen by approximately Rs 3.50 per litre. "Instead, it was risen by Rs 2, which means Rs 1.50 per litre was the subsidy that was given," he added.
Prime Minister Manmohan Singh had also said diesel prices too will be freed from government control as part of "much- needed reforms" but LPG and kerosene will continue to be subsidised.
"The fact that petrol prices have been set free, the same is going to be done to the diesel prices. (These are) much- needed reforms," he had said on his way back home from Toronto where he attended the G-20 Summit.
Basu said immediate upward pressure on prices from petroleum decontrol has already partly been felt in the June inflation figures and some of it will be there in July figures.