Deora seeks excise cut to 'check inflation'

Even as the global crude oil prices are closing in on $60 a barrel on news of a prolonged winter in the US, Petroleum Minister Murli Deora has written to Prime Minister Manmohan Singh for a Re 1 per litre cut in excise duty on crude oil.

The excise duty cut on crude oil will have a cascading effect on prices of fuel transportation, leaving scope of a possible fall in retail prices of auto fuels through reduced duties, Deora explained. "This is our proposal to help control inflation," he added.

Inflation rates hit two-year highs at 6.58 per cent for the week ended January 27.

However, the minister said retail prices of petrol and diesel will be reduced only when the international crude oil prices fall towards $50 a barrel.

"Retail prices of petrol and diesel will depend entirely on international prices, which have been rising towards $60 a barrel this month," Petroleum Minister Murli Deora told Business Standard.

Last month, the petroleum ministry had called for an immediate Re 1 cut in excise duty on diesel. However, ministry sources said the proposal was rejected as the finance ministry was of the view that such a move would not control inflation rates.

India's crude oil basket rose by $1.77 per barrel to $56.93 a barrel on Friday, maintaining an average of over $56 a barrel in February so far. It had dipped to $49 a barrel on January 18.

Reduction of duties on crude oil would lower retail prices of diesel, which in turn would lower transportation costs which are a major cause for prices of commodities rising.

Current excise duty on diesel is 8.16 per cent plus Rs 3.32 a litre, which translates into a total levy of Rs 4.98 per litre.

In the financial year ended March 2006, diesel sales accounted for 22 per cent of total excise duties, at Rs 24,214 crore.

In the last budget, the government raised duty on domestic crude oil to Rs 2,500 per tonne from Rs 1,800 a tonne. "Proceeds from the duty on crude oil would be enough to neutralise the impact of a reduction in excise duty," the petroleum ministry official said.

In late 2004, when global crude oil prices were rising and inflation had risen above 8 per cent, excise duty on petrol, diesel and kerosene had been reduced to protect inflation rates, thereby, cushion consumers from high international prices.