Oil minister rules out review of daily fuel pricing mechanism

Oil Minister Dharmendra Pradhan on Monday ruled out a daily price review of petrol and diesel, but said the government was concerned about increasing fuel prices and is working on a long-term solution.

He asked state governments to tax petrol and diesel within a “reasonable and responsible” band and not continue to reap a bonanza from rising oil prices.

“There is no review of daily price mechanism,” he said after an event to mark the receipt of the first LNG cargo from Russia under a long-term contract.

Daily revision in petrol and diesel prices, which was introduced in mid-June last year, had come under criticism after rates were hiked everyday last month in step with firming international oil rates. It was speculated that the long-term solution being worked out by the government to deal with the volatility may involve review of the daily price review mechanism.

Pradhan said fuel prices have started to decline during the five days but the rates continue to “pinch”.

After hitting all-time high of Rs 78.43 a litre for petrol and Rs 69.31 for diesel on May 29, rates have marginally fallen during the subsequent days on softening in international oil prices and rupee strengthening against the US dollar.

Petrol price has dropped by 47 paisa a litre and diesel by 34 paisa. This compares to Rs 3.64 a litre hike in petrol and Rs 3.24 a litre hike in diesel rates in Delhi in the fortnight after state-owned oil firms ended a 19-day pre-Karnataka poll hiatus to resume daily price revision on May 14.

Petrol in Delhi currently costs Rs 77.96 and diesel by Rs 68.97. Prices in Delhi are the lowest among all metros and most state capitals due to lower sales tax or VAT.

“We are thinking of a long-term solution (to price volatility). We are concerned about prices,” he said. “Government of India is taking a holistic view.”

Asked about CPM-ruled Kerala taking the lead in cutting sales tax or VAT on petrol and diesel by Re 1, the minister said he had welcomed the state government’s move but the issue should not be politicised as in November last year some other states had cut VAT.

State governments, he said, should cut sales tax, which because of their being ad valorem in nature leads to rise in revenues of the state governments when prices rise. Excise duty, charged by the Centre, on the other hand is fixed and does not change with change in retail price.

“We cannot push states but only appeal to them,” he said.

The central government levies Rs 19.48 excise duty on a litre of petrol and Rs 15.33 on diesel. State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up.

In Delhi, VAT on petrol was Rs 15.84 a litre, and Rs 9.68 on diesel in April. Today, it is Rs 16.57 on petrol and Rs 10.15 a litre on diesel.

Every rupee cut in excise duty on petrol and diesel will result in a revenue loss of Rs 13,000 crore.