FinMin frowns on petro duty cut

The resultant loss to the national exchequer, said the Department of Economic Affairs, would be Rs 2,850 crore. ‘‘The government also has a commitment for the National Employment Guarantee Scheme which would require substantial resources,’’ it added.

Oil Ministry had suggested a even-handed approach where consumer price of petrol and diesel would be raised by Rs 3 per litre with the balance relief coming from the finance ministry in the form of the duty cut.

It had justified the cut saying that the government’s current year revenue would be much higher than what was projected due to higher customs earnings from steep crude prices and extra excise duty from domestic retail prices.

But the finance ministry said it was averse to any tinkering with the duties, as it had restructred taxes in 2005-06 Budget after much deliberation. ‘‘The restructuring of duties has been done precisely to avoid frequent revision on account of volatility in international prices of oil,’’ it said.

It also spiked the restoration of price band mechanism where automatic price changes could be done within a 10 per cent band. ‘‘This ministry does not support the proposal as it seeks periodic reduction in excise and customs consequent to price changes as adhocism in fiscal policies would entail serious macroeconomic consequences.’’

It has also refused to issue a three-year, zero interest Kerosene Oil Bonds (KOB) of about Rs 9,500 crore as it would ‘‘neither enhance cash flows nor improve profitability of the OMCs’’.

‘‘Instead, the maturity profile of existing government debt would leave little headroom for accommodating liabilities of such magnitude and substantially increase government’s gross market borrowing on redemption,’’ it added.

Oil ministry’s request for KOB stemmed from the large gap between Rs 13,100 crore under-recovery on kerosene and the Rs 3,600 crore subsidy provided in the 2005-06 Budget. The bonds were an alternative to spare kerosene from a price hike, even though the warranted increase is Rs 11.21 per litre.

The only solace for the petroleum ministry is that the finance ministry supports trade discounts from stand-alone refineries, particularly the private sector, to the OMCs. But it has left it to the negotiating skills and the bargaining power of the public sector OMCs to wrest the discount. The oil ministry had suggested discounts with refineries selling products at prices halfway between import and export parity.