An expert group headed by Kirit Parikh  suggested freeing of petrol and diesel prices and raising LPG rates by Rs 100 per cylinder and kerosene by Rs 6 per litre.

“Current petroleum product pricing policy of the government is not sustainable,” Parikh said after submitting the report to Petroleum Minister Murli Deora.

Freeing petrol and diesel prices would result in an increase of Rs 3 per litre in petrol prices and Rs 3-4 in diesel prices.

At present, the government does not allow state-running fuel retailers to fix petrol, diesel, kerosene and LPG prices in line with international cost, resulting in huge revenue losses for the companies and subsidy burden on government.

Parikh said petrol and diesel pricing should be left to the competitive market process, while government should continue to subsidise PDS kerosene and domestic LPG to some extent

The price hike would lead to additional earnings for the Public Sector Oil Marketing Companies (OMCs). This amount can be easily mobilised to provide relief to the OMCs by adopting alternate measures instead of resorting to price-hike of petroleum products which would have cascading affect on already spiraling prices.

* Rs. 7500 crore per annum cess collected from ONGC and Oil India Ltd. under the Oil Industry Development (OID) Act, 1974, which is not being used for the development of the petroleum sector, can be used to create a Price Stabilisation Fund, from which the OMCs can be compensated.

* If excise duties on petrol and diesel are cut by Rs. 3/litre, a further relief of around Rs. 12000 crore can be provided to the OMCs.

* According to the Statement of Revenue Foregone in the Union Budget 2008, the Government is estimated to have lost Rs. 87992 crore in excise duty exemptions and Rs. 58655 crore in corporate tax exemptions in 2007-08. According to the Union Budget 2009-10, the revenue Foregone due to  plethora of such tax exemptions is estimated to be over four lakh crores. A substantial number of these exemptions are certainly unwarranted beyond debate. Instead of resorting to fuel price hike the Government can regenerate funds from such Foregone revenue.  The Government would not lose big revenue on account of duty cuts on petro products as compared to Revenue Foregone due to tax exemptions to reach.

* According to the Annual Report of the Reliance Industries Limited, its profit from the refining business has increased from Rs. 5915 crore in 2005-06 to Rs. 10372 crore in 2007-08. Not a single paisa of tax has been paid out of these profits, which have nearly doubled in just two years. A windfall profit tax of 20% on such profits from refining as well as oil and gas exploration can help in mobilising at least Rs. 2000 crore. Such a revenue would be further high if the profits of reliance for the present year are taken into account.

The astronomical figures for under recoveries of OMCs that are being projected as their losses are notional figures. They are not actual losses. The Government should realize that in a global context where price of crude oil is reigning at a high level, the only sustainable solution lies in restructuring duties on petro products and having a transparent pricing policy whereby the OMCs as well as the refineries do not retain hefty profit margins. What is at stake today is not the market capitalisation of the oil companies but the livelihood of the working people who are already suffering from back-breaking inflation.

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