Govt Will Not Link Oil Price Hike With Duty Reduction

The government will not link the hike in domestic prices of petroleum products to reduction in customs and excise duties. Sources told Business Standard that the government will go along with the finance ministry's opinion that duty cuts to lessen brunt of the expected rise in the price of petroleum products in the light of rising international oil prices will not bring in any change in the fiscal situation. "If the government reduces customs and excise duties on petroleum products, it will only mean shifting the oil pool deficit to revenue deficit. In absolute terms, fiscal deficit will remain the same," they said. Sources also said this was the reason why a hike in the prices of petroleum products had been never attached to tinkering with customs and excise duties. "There is no reason why that logic should be ignored now. It will not be possible for the government to alter duty structure whenever there is a change in international oil prices either way," they added. According to budget estimates, total collection from customs and excise duties on crude and petroleum products in the current financial year will be Rs 25,000 crore. The rise in international oil prices will bring in additional customs revenue and hike in domestic prices of the petroleum products will add to the excise kitty. Petroleum minister Ram Naik has made a pitch for reducing excise duty on petroleum products and customs duties on oil imports to ward off the possibility of having to raise domestic prices of petroleum products. Addressing a meeting of the consultative committee Naik has said the eventuality of (an increase) cannot be warded off for long. Consultative committee members had expressed concern over the rising international crude prices. and its impact on the country's oil pool deficit. Over 70 per cent of the country's requirement are met through imports. Meanwhile, finance ministry sources said that the current high level of international oil prices will have a marginal effect on inflation and growth but the situation can worsen if the market remains high for a sustained period. They said that the expected additional cost at $30 per barrel for the year on account of rising oil prices was Rs 2,000 crore. "The effect of rising oil prices will be absorbed by the economy in the short run. But, in the long run, it will certainly affect both inflation and the growth rate," sources pointed out.