The government is faced with the option of either cutting customs duty on petrol and diesel or take over a part of the under-recoveries of the state-owned oil companies on selling auto fuel below the import parity price.
Finance ministry officials said the petroleum ministry had proposed that the government bear a part of the under-recoveries of the public sector oil companies.
The officials said that the petroleum ministry had put the figure at Rs 18,000 crore (Rs 180 billion), while state-owned oil companies were expected to close the current financial year with under-recoveries of around Rs 38,000 crore (Rs 380 billion), based on the trends available in the first quarter.
In a report tabled in Parliament, the standing committee on petroleum recommended that the government halve the customs duty on petrol and diesel to 5 per cent to bring it in line with the import duty on crude oil.
It also proposed rationalising the excise duty structure by replacing the ad valorem component by a single specific component. The committee sought a reduction in sales tax and in the state levies, which were responsible for high prices.
The Left parties, which have opposed any price hike, had also suggested a similar formula along with the establishment of a price stabilisation fund, which was endorsed by the parliamentary panel.
Discontinuation of export incentives was also proposed by the committee.
The petroleum pricing issue is expected to be taken up by the Cabinet shortly. The Prime Minister's Energy Co-ordination Committee, scheduled to meet on Saturday, may take up the matter for discussion though it was not part of the agenda.
"Customs duty is only a mechanism to ensure fruitful gains to refining companies. It only goes into the calculations for fixing the import parity prices of these products at the refinery level, which in turn increases the consumer price," the Parliamentary committee said.
Seeking to protect the interests of the consumers, it asked the government to scrap import parity pricing as it inflated the prices of petroleum products and crude oil.
Oil companies are, however, against the proposal to cut import duty as it is expected to affect their bottomlines further. Revenue department officials said that they had not received any proposal to cut tariffs.
On the issue of the government bearing a part of the burden, finance ministry officials said that the proposal was not feasible, as the government had dismantled the administered price regime.
The Centre only provided subsidy for cooking gas and kerosene sold through the public distribution system, which is to be phased out over the next two years.
Officials said the proposal had been received after state-owned oil marketing companies reported losses during the first quarter.
Indian Oil Corporation, Hindustan Petroleum, Bharat Petroleum and IBP Ltd suffered a net loss of Rs 1,257 crore (Rs 12.57 billion) and are expected to suffer a cash loss of Rs 1,500 crore (Rs 15 billion) during July.
The cost of crude for Indian companies has reached an all-time high of $57.7 a barrel.
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