Naik Proposes Two Mechanisms To Continue Subsidies Post-Apm

The petroleum ministry has worked out two different mechanisms to administer subsidy on kerosene to be sold through the public distribution system (PDS) and domestic liquefied petroleum gas (LPG) after the dismantling of the administered pricing mechanism (APM) in the oil sector on March 31 next year.

At present, subsidies on both these items are met through the oil pool account mechanism. As the oil pool account would also be wound up on March 31, 2002, the present 33.33 per cent subsidy on PDS kerosene and 15 per cent on domestic LPG will be met through the fiscal budget from 2002-03.

In a detailed letter to finance minister Yashwant Sinha, petroleum minister Ram Naik has suggested that in case of PDS kerosene, the subsidy should be given to the state governments and for domestic LPG, the subsidy should be administered by scrapping the current excise duty of 8 per cent and the balance should be made available through reduction of sales tax by 7 per cent.

At present, the government fixes allocations of PDS kerosene for each state and Union Territory (UT), Naik said. Oil companies supply kerosene ex their storage points to their wholesalers at the subsidised price fixed by the government and claim the subsidy from the oil pool account. However, the retailing is controlled by the state governments.

Naik has said that in the post-APM period, the government has decided to continue subsidy on PDS kerosene at 33.33 per cent of import parity price. To administer subsidy on kerosene, existing allocations for each state and UT are proposed to be frozen.