Govt mulls cess to fund oil subsidy

Proposal discussed at Deora-Chidambaram meet on Tuesday.

The government may levy a cess on income tax and corporate tax to part-fund the oil subsidy bill, which is projected to balloon to Rs 235,000 crore this year, three times last year's figure, owing to rising crude oil prices.

This could be part of a multi-pronged package to provide relief to the cash-strapped oil companies. The package would also include an increase in petrol and diesel prices, reduction in customs and excise duties and an oil bond issue by the government.

The cess was one of the proposals considered at a meeting between Petroleum Minister Murli Deora and Finance Minister P Chidambaram early Tuesday, which was called to discuss the relief package for the three oil marketing companies. Government-owned Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum sell petrol, diesel, LPG and kerosene at subsidised prices. 

OIL SLIP

• Under-recovery "� or the gap between the actual selling price and subsidised price of petroleum products "� is projected at Rs 235,000 crore in the current year, three times more than what it was last year 
  
  
• Every $1 increase in the price of crude oil adds Rs 3,000 crore to the under-recovery burden 
  
  
• Petrol is currently subsidised at about Rs 16 per litre, diesel at Rs 23.50 per litre, Kerosene at Rs 29 per litre and LPG at Rs 400 per cylinder

"We discussed various options but nothing has been decided," Deora said after the meeting.

Oil company officials said a decision was needed quickly to avoid the possibility of pumps running dry. "We don't want to see a scarcity of petroleum products, particularly kerosene and LPG," said Deora. A decision could be finalised in about a week.

A cess of 1 per cent would yield a revenue of about Rs 3,000 crore and would compensate the finance ministry for the revenue lost on account of any duty cuts. "The amount of duty cuts would decide the extent of the retail price rise," said a senior oil ministry official.

The government wants to limit the price rise to the minimum possible as it is a politically unpopular move that is also opposed by the communist parties that support the ruling coalition.

A price rise would also stoke inflation, the rate of which is nearing 8 per cent "� much higher than the RBI target of 5 to 5.5 per cent.

Meanwhile, the possibility of a relief package being finalised soon saw a spurt in the share prices of the three marketing companies.

Indian Oil Corporation "� the largest marketer "� was up 1.65 per cent at Rs 421.55 at the Bombay Stock Exchange on Tuesday, when the Sensex was down 0.45 per cent and the oil and gas index fell 1.04 per cent. Hindustan Petroleum rose 2.49 per cent to Rs 246.55 and Bharat Petroleum 0.04 per cent to Rs 349.