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BUDGET & BUSINESS

OIL: The government may reduce prices of transport fuels if relief from excise duty cut is substantial.

The measures
Finance Minister P Chidambaram has kept his promise and announced a cut in ad-valorem excise on transport fuels to 6 per cent from 8 per cent. However, the specific excise duty "� Rs 13.26 a litre on petrol and Rs 3.32 a litre on diesel "� will remain unchanged.

The finance minister has also given infrastructure status to cross-country gas pipelines and storage facilities attached to pipelines. The infrastructure status will allow pipelines a 10-year tax holiday.

To reduce dependence on fossil fuels and encourage alternates, Chidambaram has exempted bio-diesel from excise duty.

The context
When retail prices of petrol and diesel were cut on February 15, the government had decided that part of the burden of losses of oil-marketing companies would be recovered from cuts in duties.

Duties comprise 52 per cent of the cost of petrol and 32 per cent of diesel. Analysts have been demanding a reduction in these duties to soften the inflationary pressure.

Tax holiday for gas pipelines was demanded to prepare the country for utilising its recently discovered gas riches.

The impact
Petroleum Minister Deora today said the government might reduce the prices of transport fuels if the relief from excise duty cut was substantial. This would further burden the oil marketing companies, which continue to post under-recovery.

Indian Oil Corporation (IOC), the largest domestic marketer which pegs its losses at Rs 50 crore per day, is expecting annual under-recovery to fall by around Rs 1,250 crore as a result of the excise cut.

However, this will not result in an immediate change to profits. We have to depend completely on oil bonds," said IOC Chairman Sarthak Behuria.

IOC's under-recovery in the first nine months of this year stood at Rs 3,524 crore after accounting for Rs 9,831 crore worth government bonds. IOC also expects the 1 per cent reduction in central sales tax to offset the 1 per cent hike in education cess.