Fuel won’t hike courtesy duties cut

Had fuel prices gone up, they would have increased inflation on their own and also had a knock-on effect. Every commodity that needs to be transported or requires fuel to manufacture would have become more expensive, leading to even more inflation.

Sources said that while customs duty would be cut by 2 per cent on each of the four products, excise duty reduction has been limited to 1 per cent each on petrol, diesel and kerosene to neutralise the 50 paise per litre rise that oil companies could have effected within the permitted 10% band for petrol and diesel.

Prices of LPG and kerosene continue to be controlled by the government but a reduction in their customs and excise duty lessens the subsidy burden which is partially met through higher diesel and petrol prices.

Sources said that Finance Minister P. Chidambaram would announce the duty cuts in Parliament tomorrow.

The reduction does not meet the increase of Rs 2.60 per litre on diesel and Rs 1.50 per litre of petrol that is required to match international prices, which have witnessed historic highs in the last fortnight.

The rationale behind the marginal cuts is plainly to pacify the oil companies from raising product prices while Parliament session is on.

The UPA government is already under flak from its largest ally, the Left, over the recent hike in petro prices. It has been hounding the Congress party on inflation and oil prices, saying that the government must roll back the prices of petrol, diesel and LPG.

Though the decision was taken by Prime Minister Manmohan Singh, Chidambaram and Petroleum Minister Mani Shankar Aiyar today, its contours were outlined by the Chief Economic Advisor Ashok Lahiri last week who advocated a mix of customs and excise duty cuts to keep the effective import duty protection at around six percent.

Lahiri’s reason for a cut in customs was that it would not dent the government’s revenue since India no longer imports these products. The reductions would marginally lower the base price at which the excise duty would be applied.

Aiyar, on the other hand, had suggested to Chidambaram that customs and excise on LPG and kerosene should be abolished while excise duty on petrol and diesel should be specific rates, instead of ad valorem, ‘‘to insulate consumers from excessive volatility in international oil prices.’’

Singh had two rounds of meetings with Chidambaram and Aiyar to evolve fiscal measures to check the price level. The three met in Parliament for half an hour in the morning, followed by an hour-long meeting in the evening at the Prime Minister’s Office.

Petrol and diesel prices have already been raised twice since the new government took over in the aftermath of a sustained rally in crude oil and petroleum product prices. A third hike was postponed yesterday.

Since the last review on July 31, global prices of petrol and diesel have breached the 10 percent band within which industry is free to tinker. A revision in domestic prices of petro products is usually taken in the middle or month-end.