Petrol, diesel prices likely to increase from midnight
In his 2010-11 budget speech11, Mukherjee said that with oil prices rising alarmingly to about $112 per barrel last year the government had exempted fuel from basic customs duty to give relief to oil marketing companies.
But, with global prices comparatively lower right now, the government had taken the step to improve the fiscal position by restoring basic duty and increasing excise duty.
"In view of the pressing need to move back to a fiscal consolidation path, I propose to restore the basic duty of 5 percent on crude petroleum; 7.5 percent on diesel and petrol and 10 percent on other refined products. I also propose to enhance the Central Excise duty on petrol and diesel by Re.1 per litre each," said Mukherjee.
According to ministry sources, this translates into an increase of Rs.2.71 per litre for petrol and Rs.2.55 percent per litre for diesel.
A notification is expected soon to formally mark the upward revision of the prices. Sources pointed out that the implementation of revision of indirect taxes is usually done from midnight. "So, it is likely that the prices could rise from midnight. We are waiting for the notification," said an official.
The fuel price increase provoked angry opposition MPs to walk out of the Lok Sabha, possibly the first time during a budget speech.
The duty of five percent on crude petroleum would be a major hit for refiners like Reliance, who have been instrumental in making India a refining hub in the region.
Mukherjee made a special mention of the Kirit Parikh committee, which had submitted its report recently on a viable and sustainable system of pricing of petroleum products.
It had recommended price deregulation of petrol and diesel, as well as a sharp decrease in subsidy of cooking gas and kerosene. However, expecting a political fallout, the government had so far dithered on implementing the recommendations.
"Decision on these recommendations will be taken by my colleague, the minister of petroleum and natural gas, in due course," said Mukherjee.
The total under-recoveries of the oil marketing companies are expected to reach Rs.40,000 crore this year, with the government not willing to go by the earlier formula of providing oil bonds. Instead, the finance ministry has only given Rs.12,000 crore in cash so far.
"I have made a conscious effort to avoid issuing bonds to oil and fertiliser companies. I would like to continue with this practice of extending government subsidy in cash, thereby bringing all subsidy related liabilities into our fiscal accounting," Mukherjee said.