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FinMin for export pricing of fuel to save subsidy bill

Jan 16 2013, 01:14 IST
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SummaryIn order to protect the country’s fiscal balance, the finance ministry is looking at abolishing the customs duty on diesel and petrol to save close to Rs 9,000 crore in subsidy bills

In order to protect the country’s fiscal balance, the finance ministry is looking at abolishing the customs duty on diesel and petrol to save close to Rs 9,000 crore in subsidy bills.

The finance ministry has informed the petroleum ministry that it plans to remove the 2.5 per cent import tax on petrol and diesel since the duty on diesel was adding to the under-recoveries of the state-run oil marketing companies (OMCs) without contributing any revenue to the exchequer.

“We have been told that the import parity pricing mechanism could be done away with on diesel and petrol to move to mechanism akin to export parity pricing as refinery inefficiencies were being covered through import parity,” said a petroleum ministry official.

This would tantamount to a change in the methodology for calculating the under-recoveries of OMCs and would lower the fuel subsidy bill estimated at Rs 1,63,000 crore this financial year.

Petrol and diesel are no longer imported by India but their landing price, which includes customs duty, is used by the refineries to calculate the prices charged from the OMCs. These prices are then used by the OMCs as the basis for fixing the outlet price and recovering any losses while selling below market price.

The duty impact on the under-recoveries is only on diesel where the government still administers the retail price. Kerosene and LPG, the other two administered fuels which add to the OMCs’ under recoveries, do not attract any customs duty.

At 2.5 per cent, its net effect is an increase of Rs 1.11 per litre on the ex-refinery price of diesel but translates into an expense of Rs 8,800 crore on under-recoveries.

The situation is not the same in the case of petrol, where the customs duty impact of Rs 1.03 per litre is passed on to the consumers and so does not add to under-recoveries.

FOR RECOVERY

* Finance ministry plans to remove import tax on petrol and diesel since it adds to under-recoveries of oil marketing firms without bringing any revenue

* Instead, the ministry plans to move to an export parity pricing regime, which would lower the fuel subsidy burden

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