The Hindu : Front Page : Oil price hike likely today

Online edition of India's National Newspaper
Tuesday, Sep 06, 2005

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Oil price hike likely today

Special Correspondent

States unlikely to cut sales tax on petrol prices: Manmohan

NEW DELHI: The prices of petrol and diesel are likely to be raised on Tuesday. Despite Left objections, Prime Minister Manmohan Singh has indicated that the Cabinet will consider the issue on Tuesday to deal with the immediate crisis created by the surging world oil prices .

A three-pronged strategy is envisaged: raising prices, issuing bonds worth Rs. 10,000 crores, and partially allowing the public sector oil companies to share the burden.

Representatives of the Left parties said this after meeting Dr. Singh here. They said the Government appeared determined to raise the prices to meet the short-term crisis posed by crude prices touching record peaks of $67 a barrel.

Communist Party of India general secretary A.B. Bardhan told The Hindu that Dr. Singh said proposals to cut excise and customs duty could be considered in the medium-term but the immediate priority was to restore health of the oil companies. Currently the oil sector was not in a position to contribute revenues or dividend to the exchequer.

Responding to the Left proposals to reduce the huge incidence of sales tax on petroleum products, the Prime Minister said the State Governments were unlikely to respond to pleas to cut sales tax on petrol, diesel and LPG as it was a major source of revenue for many of them.

During the consultations, the Prime Minister outlined a three-pronged strategy to deal with the crisis facing the oil sector which had led to losses estimated at Rs. 35,000 crore. Mr. Bardhan, said the Prime Minister proposed that as much as Rs. 14,000 crores could continue to be borne by the oil companies. Another Rs. 10,000 crores of the burden will have to be passed on to consumers, while the balance Rs. 10,000 crores could be borne by the Government by issuing oil bonds worth this amount for a seven- year period.

Dr. Singh also discussed oil sector issues with CPI(M) representatives including its general secretary Prakash Karat and Member of the Polit Bureau , Sitaram Yechury, who submitted a detailed note on the oil price issue. Mr. Karat told The Hindu that the Prime Minister felt that these suggestions could be considered in the medium term. He said a price hike appeared "imminent" as Dr. Singh was keen on resolving the immediate crisis.

Among the proposals submitted by the CPI(M) were to recover excise duty from Reliance Industries Limited which, based on newspaper reports on the issue, would fetch the exchequer as much as Rs. 10,500 crore.

Other suggestions included suspending the road cess increase, foregoing customs duty and excise duty hikes, making additional crude cess available for the stabilisation fund, suspending duty free benefits for exports of oil products and reviewing and withdrawing sales tax concessions to private refineries. All these proposals are estimated to provide a cushion of as much as Rs. 21,500 crore without considering sales tax concessions.

The note estimates that as much as Rs. 4300 crore can be made available merely by forgoing the increase in customs and excise duties while suspending the road cess for time would make about Rs. 1500 crore available over a six month period.

The suggestion to make additional crude cess available for stabilisation fund would make about Rs. 2700 available. In the case of duty free benefits for exporters of oil products, it is stated that China has withdrawn such benefits on petrol and naphtha.

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