By the time you read this, petrol prices would in all likelihood have gone up by over Rs 2.70 a litre and diesel by Rs 2.55 as the FM played ducks and drakes with customs and excise duties on motor fuels. This practically bushwhacked a chance of giving state-run oil marketers at least some freedom to decide pump prices in line with international markets.
An increase in prices was expected after the Budget as part of what was anticipated to be at least a partial deregulation.
The revised prices would have shored up the sagging bottomlines of state-run oil marketers, some of whom are facing bankruptcy due to mounting losses from selling fuels at government-capped prices. The government too would have benefited through the incremental increase in the variable tax components in fuel prices.
The Budget may have created the ground for a political roadblock in the way of deregulation by raising customs on petrol and diesel from 2.5% to 7.5%, restoring 5% import duty on crude and increasing excise by Re 1 a litre. The net impact of the move will actually push up motor fuel prices by almost Rs 3 a litre due to the impact of the budget rejig and the incremental increase in local taxes.
After such a steep increase, it appears politically impossible for the oil ministry to push for pricing reforms in line with the Kirit Parikh panel's recommendations since that would entail another increase in excess of Rs 4 a litre for petrol and more than Rs 2 for diesel in a free-market regime.
Essentially then, it is back to haggling for dole for oil minister Murli Deora unless he musters the courage to raise prices by at least another rupee or so in tandem with the duty rejig — and give it a guise of limited pricing freedom.
Dole, too, should not be a problem for the FM since he can hand back some of the Rs 26,000 crore he will mop up from the petro duty rejig to keep state oil marketers afloat.
This, some expect, is the only option left for Deora's ministry. No wonder, despite being unhappy with the duty hikes, they still see a ray of hope for reforms. Essar Oil CEO Naresh Nayyar told the Times of India, "The changes in the duty will have some negative impact on the profitability of the domestic refineries. However, there are clear-cut signs of a move towards deregulation in the automobile fuel sector which is expected to have a positive impact on private sector marketing companies."
The restoration of customs on crude will also adversely impact private refiners such as Reliance Industries and Essar Oil as their input costs will go up. Beyond the duty rejig, the increase in MAT to 18% will also hurt exploration firms and other companies that are implementing big projects during their tax holiday period.
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