Duty cut in petro products ruled out

Aiyar to launch consensus-building exercise in UPA for raising petrol, diesel prices.

The petroleum ministry is proposing that oil marketing companies be allowed to raise petrol prices by Rs 2.50 a litre and diesel prices by Rs 1.30 a litre following the finance ministry's refusal to cut duties on petroleum products.

Officials said Finance Minister P Chidambaram rejected Petroleum Minister Mani Shankar Aiyar's proposal to cut duties.

Aiyar told reporters after the meeting that he would hold further discussions with the Left parties and the finance ministry before the issue of oil price hike could be taken to the Cabinet.

"I am more than convinced about the finance minister's statement that the Budget proposals are revenue-neutral," he told reporters after the hour-long meeting with Chidambaram.

The Budget had proposed lowering Customs duty on crude oil, cooking gas, kerosene, petrol and diesel but raised excise duty on petrol and diesel. At the same time, excise duty on cooking gas and kerosene was lowered.

The increase in excise duty has necessitated an increase of Rs 2.52 per litre in petrol prices and Rs 1.65 a litre in diesel prices.

To factor in the subsequent increase in international oil prices and the additional cess on highway construction, oil marketing companies want diesel prices raised by Rs 5.26 a litre and petrol prices by Rs 5.77 a litre. Without these raises, the companies said they would lose about Rs 2,400 crore a month.

The finance ministry was of the opinion that the Centre would lose Rs 5,460 crore owing to a reduction in Customs duty on crude, over Rs 2,500 crore because of a cut in import duty and excise on cooking gas, and another Rs 1,100 crore owing to the countervailing duty.

Against this, the Centre would gain Rs 8,961 crore from the increase in excise duty on petrol and diesel, making the entire exercise revenue-neutral.

The ministry's calculations were, however, with crude prices assumed at $ 38 per barrel, while the April average had been $49.27 a barrel.

"They will gain more than they will lose. Besides, the increase in road cess will get them Rs 3,116 crore in 2005-06," petroleum ministry officials said.