States should lower taxes on petro products: Government

The central government, under attack for hiking the price of diesel price, Monday issued a strong data-supported defence of its decision, saying oil marketing companies (OMCs) are incurring huge losses due to under-recoveries that is threatening oil supplies and the nation's economy. 

The petroleum ministry in a notice, "Was the increase in price of diesel and capping of domestic LPG avoidable?", published in leading English and regional language dailies said that India needed to import 74 percent of its crude oil requirements at international rates, which had risen sharply and was compounded by the rupee's steep fall against the US dollar.

Consequently, state-run oil marketing companies (OMC) had under-recoveries amounting to Rs.1,38,541 crore in 2011-12, which for 2012-13 are projected to rise to Rs.1,87,127 crore posing a threat to oil supplies and the country's economy.

The government has incurred a net loss of Rs.54,800 crore on account of subsidising fuel supplies.

The ministry said the state governments do not bear the subsidy burden and the record Rs.5 hike in diesel price will yield states an additional revenue of Rs.8,200 crore per annum. Therefore, it argued, the states can forgo this additional revenue to provide relief to the common man by lowering state taxes.

In response to the Left parties' charge that OMCs were showing profits in their balance sheets, the ministry clarified that the profit of Rs.6,177 crore shown on this count is only 0.7 percent of the OMCs' turnover, which too had been realised owing to the subsidy of Rs.1,38,500 crore provided by the government.