It is significant that Pranab Mukherjee in his Budget speech noted that the Centre would take a decision on reform of petroleum-products pricing Oil 'in due course'. It may well suggest that the government would rather dilly-dally, court populism and not really be proactive on the recommendations of the recent Kirit Parikh committee on oil price reform. The expert panel has called for decontrol of petrol and diesel prices read market-determined prices, and price revision of those for cooking gas and kerosene. Given the huge volumes in oil and the sheer fiscal consequences of non-reform, we do need sound policy design to avoid a panoply of distortions and rigidities in petro-products pricing.
The Budget did partially roll back and raise the standard central excise on manufactures from 8% to 10%, as also the duty on large cars and SUVs from 20% to 22%. Further, restored is the customs duty of 5% on crude oil, 7.5% on diesel and petrol and 10% on other refined products; central excise on petrol and diesel has been enhanced by Re1 per litre too. The hike in duty rates of oil products have been passed on as higher retail prices. Meanwhile, the 'under-recoveries' on sales of petro-products continue unabated. Reportedly Indian Oil, the largest oil retailer, loses Rs 72 crore daily due to below-cost pricing of petrol, diesel, LPG and SKO. Oil marketing companies together are estimated to lose over Rs 130 crore per day. Total under-recoveries are estimated to be massive: Rs 47,400 crore by March 31. Note that the budgeted subvention to meet the gap is a small fraction of the total. And to make good the under-recoveries, petrol prices would need to rise by Rs 4.97 a litre, diesel by Rs 3.27, LPG by Rs 267.39 a cylinder and SKO by Rs 16.90, provided the average price of Indian basket crude remains about $70 per barrel. A closer look at retail oil prices is warranted.
Consider for instance retail price of petrol in Chennai. On a base price of Rs 21.93 per litre, the excise duty amounts to Rs 14.35, import duty on crude Rs 1.10, customs duty Rs 1.54 and sales tax Rs 5.50. So taxes add up to well over 100% of the base price. It is true that the product import duty component is notional since petrol is not really sourced from overseas. Nevertheless duties add to 100 % of the base price. There are other sub-heads in the final price, including a small cess for education, a dealer commission of Rs 1.05 and expenses on distribution and logistics of as much as Rs 6.
Source : economictimes.indiatimes.com