Planning Commission wants 5% duty on all oil products

Vol 10, PW 6 (13 Jul 06) People & Policy

India needs to streamline and rationalise taxes on oil products to deal with the inevitable rise in international oil prices.

Thats the succinct verdict of Indias Planning Commission, a powerful yet anachronistic sounding government body headed by Prime Minister Manmohan Singh that charts the contours of the countrys Soviet sounding five-year plans. Planning Commission bureaucrats are presently preparing the 11th Five Year Plan from 2007-08 and in a 14th June approach paper seen by this report the Commission says: The most important policy issue in this sector relates to pricing petroleum products.

The Commission believes global oil prices will stay high for some years and that although the price of some products have been raised the increase still leaves a large uncovered gap. According to the Commission, the only viable solution is to rationalise the tax burden on oil products over time, remove fat which may exist in existing pricing mechanisms, which give oil companies an excessive margin, realise efficiency gains through competition at the refinery gate and retail prices of petroleum products, and pass on the rest of the international oil price increase to consumers while compensating targeted groups below the poverty line as much as possible.

If its recommendations are approved the price of oil products in India will go down because the Commission wants a reconsideration of the import parity pricing of petroleum products. India is deficient in crude but has developed surplus capacity in products, says the Commission.

Product price entitlement should therefore be based on export parity pricing, which would be much lower than import parity. More, duty on products should be brought down to 5% - the same as for crude.

Among other critical issues identified by the Planning Commission are: Pricing of domestically produced natural gas and its allocation to the power and fertiliser industry; strengthening upstream regulation in the oil and gas sector; and ensuring competition and open access in the proposed pipeline transportation and distribution grid.