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India slashes duties on petroleum products

PALLAB BHATTACHARYA, New Delhi
The Indian government on Wednesday slashed excise and customs duties on petrol, diesel, kerosene and cooking gas in order to avoid another round of hike in the prices of these petroleum products in the wake of rising international oil prices.
In a reprieve for consumers, Finance Minister P Chidambaram reduced customs duty on all the four products by five percent and the excise on three of them by 3 to 4 percent with immediate effect.
Had the duties not been cut, it would have led to further rise in the petroleum products, an action which would have the transport cost having a direct bearing on pricing of essential goods.
While the common man can gets breather from what had appeared another impending increase in prices of kerosene, petrol, diesel and cooking gas, the excise and customs duty cut would make dent government exchequer by an estimated Rs 2500 crore in the remaining seven months of the financial year.
The cut in excise and customs duties on the petroleum products was the first tranche of the finance minister promised fiscal measures to contain inflation which has already crossed 7.5 percent mark, a three-year high.
Chidambaram said the government could look at more measures to contain the inflation. He, however, did not specify what these measures could be.
However, official sources said the government might look at a cut in this also if international prices continue to rise.
Petroleum Minister Mani Shankar Aiyer said consumers have been spared completely this time from any price hike of the petroleum goods. The domestic oil companies will hold on to the current prices even at the cost of their taking a hit on their margins.
The duty cuts announced by the finance ministry would hit hard the refineries, including that of private sector Reliance, as their margins would be reduced as reduction of customs duty results in lowered earnings.
The refinery gate price in petroleum
products is fixed with reference to international prices. A cut in customs duty will, therefore, bring down the import parity price of the products and lead to lowering of margin of profit for the refineries.
However, the oil marketing companies like state-owned Indian Corporation, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited are happy about the duty concessions because it will help reduce marketing losses with the sale price being less than import parity price, companies sources said. Oil marketing companies buying from refineries are now higher than retail prices.
The losses of some refining companies like BPCL is, however, likely to be offset by gains in their marketing operations, they said.