Govt reduces customs, yet hikes Diesel and LPG price

Business

oi-Shoaib MD

By Shoaib Md

Published: Monday, June 27, 2011, 9:34 [IST]

The government announced hike in diesel by Rs 3 per litre, it also increased the prices of domestic cooking gas retail price by Rs 50 per cylinder, price of kerosene was raised by Rs 2 per litre. This is the second steepest hike by the Empowered Group of Ministers of UPA alliance. A similar level of price hike was done in June 2008 by the government.

The last time prices of diesel and LPG were hiked was last year (2010) when international crude prices were nearing $80 per barrel. Now the international price is hoovering at $105 per barrel.

Petroleum Minister S Jaipal Reddy claimed that price rise was a “very modest increase", it could not be “grudged by anybody".

Pranab Mukherjee, the Finance Minister, also took a hit on the government's revenue collection of Rs 49,000 crore.

The government altogether abolished the 5% customs duty on crude oil. Event the excise duty on diesel was cut to Rs 2 per litre from Rs 4.60 per litre.

Besides, Mukherjee also cut the notional customs duty on both diesel and petrol to 2.5% from 7.5%. Reddy said that the decision to cut duty on petrol ensures that there is no need to increase the petrol price by Rs 1.98 per litre. Reduction of duty on diesel would result dent the revenues by Rs 23,000 crore, meanwhile removal of custom duty would result in loss to the exchequer by Rs 26,000 crore for the current fiscal.

Despite these measures, reports estimate the loss by state-run oil marketing companies will come to approximately Rs 120,000 crore of under-recoveries in current fiscal since price hike cover only an additional Rs 21,000 crore.

This deficit will be met through a combination of cash subsidy from the government and contribution from upstream firms like ONGC but the exact sharing between them has not been decided. Before the current increase in price, the OMCs were expected to post a loss of Rs 171,140 crore.

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