India mulls duty cuts to cushion fuel price rise

By Santosh Menon

LONDON (Reuters) - India may consider cuts to government tax levies alongside a rise in fuel prices to compensate state-run oil firms reeling under millions of dollars of daily losses, Petroleum Secretary M.S. Srinivasan said on Wednesday.

However, a decision on raising administered retail prices for petrol and diesel is unlikely before next month as a group of ministers that is expected to decide on the issue cannot meet before then, he said.

Srinivasan, the most senior official in India's oil ministry, told Reuters in an interview in London that his ministry's proposal to the ministerial panel included a cut in the excise duties on petrol and diesel along with a price rise.

The cut in duties, which rank among the highest in the world at 52 percent for petrol and 34 percent for diesel, would help cushion the blow for retail consumers and alleviate the finances of state-run oil firms that have been selling fuel below cost.

Under the proposal, the state oil firms will get to keep the proceeds from the duty cuts to compensate them for their losses.

Srinivasan said the so-called "under-recoveries", the amount oil companies should be collecting from consumers, were estimated to be around 750 billion rupees for the year to March 2008.

A one rupee cut in the excise duty on petrol will fetch the state oil firms 10 billion rupees between them to keep, while a rupee cut in the diesel levy could mean a windfall of 48 billion rupees.