Don't change excise on transport fuels, suggests Arvind Subramanian

In a paper submitted last month, he suggested a status quo on excise duties till international oil prices rise to $65 a barrel

Following this week's cut in transport fuel prices, the Centre is likely to favour Chief Economic Advisor Arvind Subramanian's view that excise duty on petrol and diesel should not be cut in the future, said a senior official here.

In a paper submitted last month, Subramanian suggested a status quo on excise duties till international oil prices rise to $65 a barrel from their current levels of under $50, said the official of the finance ministry.

The paper argues that any price-rise above $65 a barrel should be borne equally by consumers, who will have to pay higher rates, and the government which will need to cut excise duty on transport fuels.

Amid the recent fluctuation in global crude oil prices, the Indian basket of crude closed trade on Thursday at $47.24 for a barrel of 159 litres, up from its previous day close at $46.80, according to the available data.

State-run Indian Oil Corporation (IOC) cut the price of petrol by 89 paise a litre and of diesel by 49 paise effective from Friday in Delhi, with corresponding decrease in other states.

Petrol per litre now costs Rs 64.76 in Delhi, Rs 67.79 in Kolkata, Rs 69.32 in Mumbai, and Rs 64.24 in Chennai.

Diesel costs Rs 54.70 in Delhi, Rs 56.89 in Kolkata, Rs 60 in Mumbai, and Rs 56.25 in Chennai.

Making its previous fortnightly revision in fuel prices on June 16, IOC had hiked price of petrol marginally by five paise a litre and of diesel by Rs 1.26, both at Delhi, with corresponding increase in other states.

With oil prices in free fall over the entire last year, falling from well over $100 a barrel levels to around $27, the government had hiked excise duty on petrol and diesel nine-fold to garner additional revenues. In all, it raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47.

Oil prices have surged more than 80% on a weaker US dollar from a 12-year low in January.

Subramanian is of the view that taking into account the government's tighter fiscal position this year after approving implementation of the 7th Central Pay Commission (7CPC) recommendations, it would be unwise to cut excise duty till crude prices climb back to his suggested trigger level.

Finance Minister Arun Jaitley has estimated the "recurring burden" on central government finances this year on account of the 7CPC, including for arrears payment, at Rs 84,933 crore.