New Delhi: Economic Survey strongly prescribes passing on the cost of production of petroleum products to consumers and warns that the current subsidies in cooking gas and kerosene will have serious consequences and 'flounder' reforms in this sector.
Criticising lack of 'appropriate' pricing of petroleum products, the pre-Budget Economic Survey has warned that the current practice of not passing on cost of production to consumers will have serious consequences and said non-resolution of subsidies in cooking gas and kerosene was 'floundering' reforms in the sector.
"With medium-term prospects of crude prices remaining high, the continuance of incomplete pass-throughs is not sustainable without serious consequences to the financial health of oil companies and the exchequer," the Survey warned and said management of the crisis needed bold response.
Despite hiking petrol price by Rs 5.50 a litre and diesel by Rs 4 per litre in two installments in 2005-06, oil firms continue to sell the two auto fuels below the cost price. Oil firms are losing Rs 171 on sale of every cylinder of domestic LPG and Rs 12.96 on sale of every litre of kerosene through PDS.
"The movement towards market-determined pricing in hydrocarbon sector has floundered, pending the resolution of the issue of subsidy in domestic LPG and PDS kerosene," the
Survey, tabled in Parliament, said.
Besides, the perverse incentives for fuel switching and distortions arising from differential tax rates need to be addressed. "The management of the lingering oil crisis
requires rapid and bold policy response with a firm resolve."
The Survey, which is supposed to be a reflection of future government policies, stated that customs and excise on petroleum products constitute about 40 per cent of the total customs/excise collections of the government. "With an equally high sales tax, ranging from 12 per cent to 38 per cent, the tax component of the retail price of petrol and diesel remains high."
The high taxation "has been further compounded by the duty differential across products, including on the basis of end-use, leading to problems of fuel-switching and other
malpractices," the Survey said, pointing to rampant adulteration of auto fuel with subsidised kerosene.
With PTI inputs
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