No Basic Duty on Crude, Excise on Diesel Cut – Press Note

[Ministry of Petroleum & Natural Gas Press Note dated 24 June 2011]

The Empowered Group of Ministers (EGoM) on under-recoveries met on 24^th June 2011 under the chairmanship of the Finance Minister to consider the alarming situation arising out projected massive under-recoveries of the Oil Marketing Companies of Rs. 1,71,140 crore for the year 2011-12 in the wake of high international crude oil prices. It took the following decisions to meet the situation:

(a) Elimination of 5% customs duty on crude oil (and on all petro-products also by 5 percentage points). This will entail a loss of about Rs.26,000 crore to the Government for the full year.

(b) Reduction in excise duty on diesel (HSD) from Rs.4.60/litre to Rs.2/litre. This will entail a revenue loss of about Rs.23,000 crore to the Government or the full year. It could not be reduced any further as the balance excise duty is on account of additional excise duty which is earmarked for Central Road Fund and Education Cess.

(c) Minimal increase in product prices to reduce the under recoveries of the Oil Marketing Companies. The price of Diesel will be increased by Rs.3/litre, PDS Kerosene by Rs.2 per litre and of Domestic LPG by only Rs.50 per cylinder excluding state levies such as VAT. These price revisions will reduce the under-recoveries of OMCs to the extent of approximately Rs.21,000 crore.

As the Government of India has entirely eliminated the customs duty on crude oil, reduced the customs duty on products to the corresponding extent and drastically reduced the excise duty on diesel, it is hoped that the State Governments would also reduce the state levies to a corresponding extent.