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FinMin against customs duty cut on crude
May, 11th 2011

The Central Board of Excise & Customs (CBEC) is against a reduction in customs duty on crude with officials saying that the government stood to lose up to Rs 23,000 crore, which could upset the Centre's fiscal arithmetic. And, if the overall indirect collections falls short of the budget estimates, benefit of CBEC employees could be hit.

Under existing rules, 1% of the difference between the budget estimates and actual collections goes towards staff welfare if collections exceed the original estimates.

A senior government official, however, said that the petroleum ministry was not pushing hard for a duty cut. "It is up to the finance ministry to decide. It can help lower the burden on oil market companies by giving them cash or by cutting duties.

Which pocket they use is their prerogative," the official added. The government is to take a call on raising fuel prices to bring them in line with international levels. A decision is expected soon.

More than the staff consideration, the finance ministry is keen that its overall fiscal calculations do not go awry as it is trying to return to fiscal consolidation path that it had deviated from during the financial crisis. In the Budget for 2011-12, it has provided Rs 23,640 crore as subsidy to oil marketing companies for selling subsidized cooking gas and kerosene.

In contrast, during the last financial year, the government had provided nearly Rs 38,400 crore as petroleum subsidy. Last year's payout was based on the calculations done in June when international crude oil prices were hovering around $75 a barrel, compared to nearly $120 now.

At the time of presenting the Budget in February, the finance ministry had refused to provide a higher amount on the grounds that the oil price during the current financial year was not known and the amount would be provided during the course of the year. The government has budgeted for a fiscal deficit of Rs 4.12 lakh crore in 2011-12, compared to just a little over Rs 4 lakh crore last year.

As a proportion of the gross domestic product, it is, however, projected to decrease to 4.6% compared to the revised estimate of 5.1% of GDP in 2010-11. The finance ministry, however, fears that the higher subsidy burden on account of an increase in international oil prices could upset its calculations.

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