Minister for petroleum and natural gas Ram Naik has very few options before him for tackling the more than Rs 7,500 crore deficit in the oil pool account, that is growing by Rs 500 crore every month. He could either rollback some of the subsidies on LPG (liquefied petroleum gas) and kerosene, raise diesel prices to global levels, or make petrol and jet fuel users (who actually pay for the subsidies) pay even more.

He could alternatively insist that the revenue department give some tax reliefs to petro-product consumers. Taxes and levies on fuels have made the recent spurt in crude oil prices especially unbearable for consumers all over the world.

At home the revenue department mops up roughly Rs 24,000 crore in the way of excise and customs duties on crude oil and petroleum products every year. When a hike in oil prices became imminent because of soaring crude prices earlier this year, Naik and his ministry had opted for duty cuts as a concession to consumers.

Union finance minister Yashwant Sinha finally granted a cut in customs duty on crude oil, to bring down the input cost of petroleum refineries. Naik also rolled back some of the subsidy on cooking gas and kerosene oil and an unintended subsidy on jet fuel.

The Government is unlikely to opt for another round of unpopular hike in fuel prices, especially now that some of the states are in the midst of local elections and bypolls. A battle for duty concessions seems a more likely solution to the petroleum ministry's problems, especially since the taxes make the subsidies seem bigger than they are.

Volatile world market prices and stagnant fuel prices at home have resulted in a subsidy of Rs 1.03 a litre on the ex-storage point of diesel, last revised in October 1999. The intended subsidy on poor man's fuel kerosene, is Rs 4.99 a litre at the ex-storage point, where the price is Rs 4.50 a litre.

The ex-storage point price of Rs 154.01 for LPG cylinders, comes with a subsidy of Rs 143.08 per cylinder. The subsidy on diesel alone will swell to Rs 6,000 crore by the end of the year. Kerosene oil and cooking gas together entail a subsidy of Rs 11,000 crore.

Subsidised kerosene is imported free of duty, but attracts 8 per cent excise duty. Subsidised LPG comes bloated with 10 per cent customs duty and 8 per cent excise duty. The duties on cooking gas and kerosene, somewhat make nonsense of the subsidies.

The declared subsidy on LPG cylinders is, for instance, Rs 143 a cylinder or 92 per cent. Considering that the LPG consumer pays Rs 29.70 as customs duty and another Rs 23.76 a cylinder as excise, the effective subsidy on the cylinder is barely 24 per cent.

With sales tax and state levies added on, the subsidy element on cooking gas is as low as 15 per cent in places like Calcutta, where local levies are higher. Incidentally, the pricing reforms schedule in the petroleum industry targets the year 2002 for bringing down subsidies on LPG to 15 per cent.

Much of the oil pool account deficit accrued from subsidies, therefore, finds its way to the Central coffers. In other words, a portion of the declared subsidies on kerosene and LPG that petrol and jet fuel consumers and public sector crude producers pay for, are revenue earnings of the Government.

It is not difficult to guess that Naik will press his argument for duty cuts on subsidised petroleum products, rather than increase prices. Whether the finance minister will be keen to forego some of the Rs 750 crore he plans to earn as excise collections from kerosene and LPG this year, is another question.