The petroleum ministry has identified all north-eastern states, Sikkim, Jammu and Kashmir, Himachal Pradesh, Uttaranchal, Andaman and Nicobar islands and Lakshadweep islands as the "far-flung" areas eligible for freight subsidy for supply of retail petroleum products.
In an earlier communication to the finance ministry, the petroleum ministry had excluded Assam from the states eligible for this subsidy. However, this time around, even this north-eastern states seem to have been included in the category of eligible states.
The annual freight subsidy bill on this count, which will take effect after the dismantling of the administered pricing mechanism (APM) in the oil sector on April 1, is expected to come to Rs 1,000 crore.
During its discussions with the finance ministry, the petroleum ministry has stressed that this subsidy is required to contain the impact of freight on the retail selling prices of petrol, diesel and kerosene sold through the public distribution system (PDS), and domestic liquefied petroleum gas (LPG) in far-flung areas.
The petroleum ministry has said that for instance, assuming the crude oil prices of $25 a barrel, an exchange rate of Rs 48 to a dollar, and the existing duty structure, in the absence of such a subsidy, the difference in the post-APM retail prices of diesel and domestic LPG between Delhi and Leh would be about Rs 3.30 a litre and Rs 142 a cylinder respectively.
The petroleum ministry has also proposed that in the post-APM period, the subsidy will be implemented by concerned states and Union Territories by reducing sales tax to an agreed level, "below the level existing on April 1, 2001."
The loss of revenue to states and Union Territories on this count would be made up from the fiscal budget, the ministry has suggested. For PDS kerosene, the freight subsidy will be made available to the states concerned and Union Territories alongwith the subsidy on the product.
Presently, under APM, freight subsidy is provided for hilly areas and north-eastern states for PDS kerosene and domestic LPG. The areas eligible for the subsidy have been identified by the Planning Commission. Another scheme for freight subsidy for north-eastern states and Sikkim is also in force for petrol and diesel.
