States asked to reduce diesel, kerosene, LPG levies

Finance Minister Pranab Mukherjee has written to the states urging them to reduce levies on diesel, kerosene and domestic LPG in line with the duty cuts undertaken by the Union government last week.

In a letter to the chief ministers, Mukherjee has sought their cooperation in 'providing some relief to the common man', the finance ministry said in a media statement on Monday.

The finance minister stated that though crude oil prices in the international market have been ruling at a very high level for the last six months, the government had so far maintained a firm control over the prices of diesel, kerosene and domestic LPG at the retail level to protect the common man.

He, however, pointed out that this has resulted in losses of state-owned oil marketing companies spiralling out of control.

OMCs have lost more than Rs 450 crore (Rs 4.5 billion) per day due to the significant difference between India's domestic fuel prices and international prices.

This concern necessitated some revision in the administered price, the finance minister said, and added the government

was conscious of the burden on the common man, and thus, the price hike was minimal.

The Centre increased the price of diesel by Rs 3 a litre, kerosene by Rs 2 a litre and cooking gas by Rs 50 a cylinder to raise Rs 21,000 crore (Rs 210 billion).

It removed the five per cent customs duty on crude oil, brought down the import duty on petrol and diesel from 7.5 per cent to 2.5 per cent, and reduced the excise duty on diesel by Rs 2.6 to Rs 2 a litre, sacrificing Rs 49,000 crore (Rs 490 billion) a year.

Despite that, state-run oil firms will still end the financial year with a revenue loss of Rs 121,700 crore (Rs 1,217 billion) revenue loss on selling diesel, domestic LPG and kerosene at government rates.

The letter says though the Centre is under compulsion to maintain its fiscal and budgetary resource management targets and find additional resources to finance various welfare schemes, it has sacrificed its revenues from the oil sector to minimise the impact on the common man.

Besides the increase in prices and reduction in duties, the Centre would also have to allocate significant resources as subsidies to the OMCs, so as to ensure their financial survival.