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Hike diesel price by 75 paise instead of excise duty on cars: Heavy Industries Ministry
February, 14th 2012

The Heavy Industries Ministry, in consultation with the Planning Commission, has suggested an increase in diesel fuel prices by Rs 0.75 a litre as an alternative to raising excise duty on diesel cars.

This has come at a time when both the Finance and the Petroleum Ministries are actively pushing for duty hike on diesel cars in the upcoming Budget.

Although a meeting of an Inter-Ministerial Group was called on Monday to arrive at a consensus, officials from neither the Finance Ministry, nor the Petroleum Ministry were present. However, apart from the Planning Commission, the meeting was attended by senior officials of the National Manufacturing Competitiveness Council and auto industry representatives.

It was suggested by everybody (at the meeting) that diesel will have to be brought to market price, or at least increased by Rs 0.75 a litre. This will help the OMCs garner the same amount that they were targeting through a Rs 80,000 increase in diesel car excise rates, a source close to the development told Business Line.

Expected to counter the recent spurt in diesel car demand because of the lower pricing of the fuel versus petrol, such a move has been tagged a more viable alternative than raising the excise duty on diesel cars. This is because the end revenue generation of Rs 7,000-8,000 crore is believed to be similar in both cases. And, this may spare the car industry from a negative sales impact.


With the revenues, oil marketing companies (OMCs) can reduce under-recoveries on selling the same fuel at a Government-controlled price, while a reduction in the prevailing diesel price gap with petrol could also help petrol car sales pick up. The under-recoveries of state-controlled OMCs, Indian Oil, Bharat Petroleum and HPCL, on account of diesel subsidy have amounted to Rs 56,732 crore in the April to December, 2011 period.

However, experts view raising diesel prices as a tough political decision, especially because of the impact on inflation.

The Finance Ministry is expected to give their view in a day or two, and a comprehensive report will be synthesised by the weekend. The final decision will obviously be theirs, another source said.

The consensus arrived on Monday is expected to be communicated by the Union Heavy Industries Minister, Mr Praful Patel, to the Finance Ministry within a week. Mr Patel has previously already written to the Prime Minister and Finance Minister opposing any plan to increase taxes on cars.

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