Customs duty on crude to be cut

The government to review norms for FDI and cross-media holding among other guidelines.

The government is likely to cut the Customs duty on crude oil following Prime Minister Manmohan Singh's discussions with Finance Minister P Chidambaram and Petroleum Minister Mani Shankar Aiyar today.

Chidambaram is expected to announce the government's stand in Parliament as part of a strategy to rein in inflation. At present, the Customs duty on crude oil is 10 per cent and government officials expect this to be halved to 5 per cent.

Oil companies are losing Rs 25 crore a day due to under-recoveries on diesel, estimated at Rs 2 a litre. During 2003-04 the government earned Rs 7,619 crore through Customs duty on crude oil. On refined petroleum products, the revenue to the exchequer amounted to Rs 2,122 crore.

The oil companies were unable to effect an increase in diesel and petrol prices on Sunday following intervention by the petroleum ministry. The companies are now banking on duty cuts on petroleum products to make good their losses.

Oil company executives said they were awaiting a decision from the government. "As per the new pricing formula, the government was to step in case the band within which we can hike prices was breached. Despite the Cabinet decision, the government has not acted and we are being made to pay for the global price increase," an executive with an oil marketing company said.

The average cost of crude oil for Indian companies during the first four months of the current financial year was estimated at over $35 a barrel, against $27.9 a barrel during 2003-04.

The finance ministry had till last week opposed any tariff reduction on the grounds that it would cause a severe loss to the exchequer. Aiyar, however, has been pushing the oil companies' case and had written to Chidambaram last week seeking duty cuts.

The oil companies had approached the government after the last round of price revision, seeking duty cuts since they had breached the permissible 10 per cent band for effecting the price increase in diesel. The last revision took place on July 31 and the oil marketing companies were due to effect another revision on Sunday.

The government had cleared a new pricing mechanism for oil companies under which they can hike petrol and diesel prices every fortnight in a band of 10 per cent around the mean of the last three months' rolling average prices and the last one year's rolling average price.