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Slash oil duty and hope for the best

New Delhi, Aug. 18: The government today slashed the customs duty on petrol, diesel, kerosene and cooking gas by 5 per cent and reduced the excise duty on petrol and diesel by 3 per cent, and on kerosene by 4 per cent.

The government is expected to lose Rs 2,500 crore in the current financial year because of the duty cuts.

“We have decided to make a reduction in customs and excise duties and I hope that (international) crude prices will decline,” finance minister P. Chidambaram told reporters after announcing the measures in Parliament.

The move has been taken to reduce the financial burden on public sector oil companies that have been restrained from raising petrol and diesel prices despite a sharp spurt in the global market.

An Indian Oil official said the company would gain around Rs 1,800 crore from the duty cuts in the rest of 2004-05. He said the cuts would not, however, cushion the entire burden of costs the oil companies have to bear while holding petrol and diesel prices at current levels.

The oil companies were set to raise petrol and diesel prices on August 15 but were persuaded not to.

The price of petrol has gone up by over Rs 3 per litre while diesel has become dearer by Rs 2.48 per litre in the two rounds of increases since the Congress-led coalition came to power. The price of cooking gas was also raised by Rs 20 per cylinder after two years.

With inflation surging to 7.61 per cent, the government is intent on tamping down price pressure which stems from rising fuel and steel costs.

Inflation is expected to rise further as the petrol and diesel price increase of July 31 has not yet been factored into the wholesale price index. The oil companies were keen to increase the price of petrol and diesel by Re 1 per litre on August 15 since the Indian basket of crude imports has touched a 21-year high of $42 per barrel.

“What we have done is avoid any burden on consumers. We have avoided any rise in prices of petroleum products by reducing the duties,” Chidambaram said.

The retail selling prices of petrol and diesel included a 20 per cent customs duty which, together with a notional “ocean freight”, works out to a good Rs 2 to 3 per litre. Since neither of these fuels is imported, this is a notional cost built into the price. In addition, the excise duty on petrol is over Rs 12 per litre while that on diesel is around Rs 3.50.

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