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Union Budget 2012-2013:Excise on branded diesel begins to hit

The petroleum ministry asks the finance ministry to scale down the excise duty on branded diesel in the forthcoming budget due to the sharp drop in the sale of the fuel.

S.P.S. Pannu | February 13, 2012 | Updated 14:07 IST

The petroleum ministry has asked the finance ministry to scale down the excise duty on branded diesel in the forthcoming budget due to the sharp drop in the sale of the fuel.

The petroleum ministry has pointed out that while the excise duty on ordinary diesel was reduced by Rs 2.60 per litre on June 25 last year, the duty on branded diesel such as Indian Oil's Xtramile and Bharat Petroleum's Speed was left untouched.

While earlier, the duty on branded diesel was only Rs 1.15 per litre higher than that on ordinary diesel, the difference has now gone up to Rs 3.75 a litre. As a result, while before June 25, the price difference between ordinary diesel and superior branded ones was only around Rs 2 a litre, the difference has now gone up to Rs 5 a litre.

Xtramile diesel sells at Rs 45.83 per litre at filling stations in Delhi while the normal one is available at Rs 40.91 per litre.

The large price difference has led to a sharp decline in the sale of branded diesel. The petroleum ministry has argued that public sector oil companies have made huge investments in setting up infrastructure for supplying these premium fuels and this would turn unviable if the present policy is not rolled back.

Senior oil company officials are of the view that there is a strong case for lowering the duty on premium diesel and petrol as these fuels cause less pollution.

Indian Oil Corporation's (IOC) director, business development, R.K. Ghosh said that the the company's sale of XtraMile diesel has come down to an insignificant one to two per cent of total diesel sales from around 12 per cent at its peak level in 2008.

Similarly, sales of XtraPremium petrol have fallen to four to five per cent of total petrol sales from a high of 27 per cent in 2008. While the objective of the higher excise duty was to raise more revenue, in practice this has proved to be counter-productive as the high price has wiped out sales.

Ghosh said that truckers and bus operators have stopped buying premium diesel because fuel costs form a major part of their operational costs. Since they have to buy fuels in large quantities, those going in for the costlier diesel would lose out to their competitors in the market. Highway sales of premium diesel have virtually dried up and only owners of premium cars and sports utility vehicles are opting for superior quality fuel.

IOC has had to withdraw premium fuels from several pumps on highways due to negligible sales, he added. "We cannot let the tanks and dispensing units lie idle; so these premium fuels are being supplied more selectively to points where they still sell," he explained.

Similarly, Xtrapremium petrol sells for Rs 68.14 per litre while the normal variant is priced at Rs 65.64. Here again, half the price difference is due to the higher excise duty on premium petrol. The petroleum ministry has supported the case of public sector oil firms to lower the excise duty on branded fuels. However, the finance ministry has refused to budge in the past as it feels revenue will fall and fiscal deficit will go up.

According to oil firms, branded fuels, which contain additives from leading multinational companies such as Chevron, result in better engine performance and reduce pollution levels. Officials claim that they are continuing to market these premium fuels since they have already been launched and provide the consumer with a choice.

Courtesy: Mail Today 

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