Govt needs to withdraw duty cuts of June to meet yawning deficit, but that would unleash sea of red ink for state-owned oil marketing firms.
The decline in the rupee’s value may scuttle the finance ministry’s plan to roll back the cut in excise and customs duties on petroleum products announced earlier this year to deal with rising crude oil prices. Doing so could mean a blow of Rs 49,000 crore in tax revenue to the government for the full year.
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“Global crude prices have fallen in the last few months but if the trend of a depreciating rupee continues, it will be difficult to restore the duties on petroleum products,” said a ministry official.
In June, the government removed the customs duty of five per cent on crude, brought down the import duty on petrol and diesel from 7.5 per cent to 2.5 per cent, and on other petroleum products to five per cent from 10 per cent. It also abolished the Rs 2.6 per litre basic excise duty on diesel, to give some relief to oil marketing companies in the wake of rising crude prices.
These prices have now fallen below $100 per barrel after hovering around $115 per barrel in the first quarter of the current financial year. The fall could have given some room to the government to re-introduce the duties in the Budget this February. However, the rupee has slid 16 per cent against the dollar in the past four months, making it difficult for the government to bring back the duties at a time when the borrowing costs for oil refiners have gone up. On Friday, the rupee ended 27 paise lower from the previous day’s close, at 52.03.
The mid-year analysis tabled in Parliament last week said with inflation high in India compared to the US, some rupee depreciation is to be expected. Petroleum ministry data has showed every rupee drop against the dollar increased annual revenue losses for the three state-owned oil retailers — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — by Rs 8,000 crore.
Import of petroleum, oil and lubricants rose 42.7 per cent at $94.1 billion during April-November, 30.4 per cent of the total import of $309.5 bn during the period.
Cash needed
The cut in petroleum duties is pinching the revenue department a lot, as the growth in its indirect tax collection has fallen from a little over 25 per cent in the first quarter of 2011-12 to 6.5 per cent in November. During the month, central excise collection declined by 6.5 per cent. Despite growth of about 30 per cent in imports in the first eight months, customs collections also posted only a 4.7 per cent rise.
After declaring the indirect tax numbers on Friday, S K Goel, chairman of the Central Board of Excise & Customs, for the first time indicated the government may miss the target this year, though by a small margin. The Budget estimate for indirect tax collections in 2011-12 was Rs 3,92,098 crore, later increased to Rs 4,00,635 crore by finance minister Pranab Mukherjee.
The Reserve Bank of India had intervened in the foreign exchange market for the first time in September, by selling $845 mn to reduce excess volatility in rupee. During the peak of the 2008-09 global economic crises, the rupee had depreciated significantly to about 52 per dollar, as the dollar gained strength as a ‘safe haven’ currency. Since that time, it had appreciated to about Rs 44 per dollar. Beginning August, it has again depreciated, to above Rs 52.
