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No steep cut in retail fuel prices

The government has been toying with the idea of increasing Customs and excise duties on petrol and diesel.

, ET Bureau|
Jan 28, 2009, 04.15 AM IST
NEW DELHI: The government has ruled out a steep reduction in pump prices of auto fuels. It has an option of reducing petrol price by Rs 4 a litre and diesel by Re 1 a litre after taking into account the proposed duty changes. The government has been toying with the idea of increasing Customs and excise duties on petrol and diesel.

Levies on the fuel were reduced in June last year when crude prices were at a record $147 a barrel. Restoring the duties to earlier levels will reduce the headroom for retail price cuts.

Armed with several options, the oil ministry is ready to table the fuel price issue in the next Cabinet Committee on Political Affairs (CCPA) meeting, an official in the government, who didn���t wish to be named, said. CCPA, which is expected to meet soon, is the final authority to decide on fuel price cut.

���The profit margin in petrol is about Rs 7 a litre and diesel is about Rs 3 a litre. Restoring the duties, about 90 paise Customs duty and Re 1 excise, would further squeeze the margin by about Rs 2 a litre on the two fuels. After providing some cushion to partly subsidise retail sale of cooking gas and kerosene, there may not be much scope for a steep price cut,��� a person in the know, who wished not to be identified, said. Officials in the Planning Commission, petroleum and finance ministries are involved in the issue of pricing of petroleum products.

Another option is to effect price cuts without restoring Customs and excise duties, he said. ���This would reduce pump prices of petrol by Rs 7 a litre and diesel by Rs 3 a litre. However, finance ministry is not willing to forego Rs 5,600-crore revenue at the end of current fiscal when it has to make provisions for various social sector programmes,��� he said. On June 4, the government had announced reduction in Customs duty on petrol and diesel from 7.5% to 2.5%. Excise duties on unbranded diesel and petrol were also reduced by Re l a litre.

According to another official, the option of freeing pump prices of petrol and diesel from the government control is also on the table. ���Some decision makers are of the view that prices of petrol and diesel should be deregulated now. There are others who wants it to be done after the Parliamentary elections. It is a political decision and no one can pre-judge the CCPA decision,��� he said on condition of anonymity. ���However, deregulation of auto fuel pricing is certain, now or after three-four months,��� he added. According to him, the proposed deregulation would benchmark pump prices of petrol and diesel with international rates, as in the case of aviation turbine fuel (ATF).
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