Subsidies to all Public or Private Oil & Petroleum companies in India – A viable suggestion in national interest

 
The ratio of excise duty to retail prices in India are as high as 36% for petrol and 17% for diesel, which by far are the highest as compared to other developing countries like China, Indonesia, Pakistan, Thailand and Philippines

A report, prepared by National Institute of Public Finance and Policy has prepared and sent in draft form, called Modelling Economic Impact of Oil Price Changes in Indian Economy: Methods and Application and submitted to Petroleum Pricing Advisory Committee (PPAC) has sought the elimination of petroleum subsidy that has curtailed the entry of private sector retailers and competition for petroleum products.

The report is likely to be finalized and made public early next week, with major corrections which could include seeking price parity between private and public sector oil retailers. The draft report has suggested that the ad-valorem taxes should be replaced by a specific duty structure and interestingly, it does not mention oil bonds and sharing of subsidy by oil companies - a practice widespread in India at present.

The report has observed that the direct taxes on petroleum products in India are very high - a moderate indirect tax regime would support the high growth rate that India aspire to achieve in both short and medium term. It also suggests that while formulating the tax rates, countries like India should phase out subsidies gradually, keeping in mind the socio political aspects of the issue.

Similarly, the ratio of excise duty to retail prices in India are as high as 36% for petrol and 17% for diesel, which by far are the highest as compared to other developing countries like China, Indonesia, Pakistan, Thailand and Philippines.

According to oil industry sources, they have urged time and again that pricing of petrol and petroleum products should be rationalised in national interest and recommendations of the Dr Rangarajan Committee about pricing of petroleum products should be implemented in letter and spirit. The report has endorsed this view underlining that a move towards trade parity pricing as suggested by this Committee would be a positive step to move towards market determined prices.

While rationalising the duty structure at the Central level, there is a need to rationalise the state level sales tax and value added tax structure also.

The solution to the problem of protection to public sector oil undertakings lies in the scrapping of subsidies and taxes that co-exist. It is pointed out that Government of India in the past has rectified such co-existence of subsidised LPG and PDS kerosene. Co-existence of subsidies through oil bonds along with taxes or excise would virtually eliminate the possibility of healthy private sector participation.

The private companies have yet another suggestion. They say another viable approach is to pay subsidies to all companies whether in public or private sector. Here a pre-fixed subsidy can be adjusted by oil marketing companies on duty payments, based on excise gate passes for removals from refineries for domestic consumption.

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