Governments And Subsidy For Petroleum Products Economics Essay

The subsidy as construct was ab initio established as portion of distribution strategy during fuel deficits in World War II. After the was, the subsidy was maintained with the baronial purpose of sufficient handiness and entree of cookery and illuming fuel to common family and with the purpose of stabilising monetary values.

The system of subsidy provided by Government for Kerosene oil and liquefied crude oil gas ( LPG ) is disputing issue and of great concern non merely for Oil Marketing Companies ( OMC ) but besides for the common consumer who lives down the streets of India due to higher monetary value fluctuations in the petroleum oil. In the last 2 old ages the petroleum oil has been seen fluctuating from 45 $ per barrel to 150 $ per barrel and rejoining degrees of & gt ; 90 $ per barrel in December 2010.

Specifying Subsidy

IMF defines subsidy as

A monetary value subsidy is the difference between the monetary value confronting manufacturers or consumers and a specified “ Optimum ” benchmark monetary value.

In an economic system which can bear the features of “ Competitive Markets ” , wherein the resources can be transferred by negligible sum utilizing assorted revenue enhancements, the fringy supply cost of he merchandise is taken as the “ Bench grade Price ” . Practically, ingestion revenue enhancements are required to be applied on the merchandises to raise gross or rectify any market failures ( which can go on in economic system either due to asymmetry of information or other grounds ) and hence Benchmark monetary values should besides include “ Operational optimum Taxes ” in add-on to the fringy supply costs.

A revenue enhancement constituent below its “ Operational optimum degree ” generates a “ Tax Subsidy ”

Global Position for Oil Subsidy & A ; Ramsey regulation for Subsidy

Assorted States have different revenue enhancement degrees due to assorted operational grounds which may include revenue enhancement aggregation as gross generators, gross demands, array of revenue enhancement instruments available to the authorities, concern about distribution of income forms across length and comprehensiveness of state.

Basically the basic economic priniciple indicates that the revenue enhancement constituent on crude oil merchandises should be higher as compared to the revenue enhancements on other consumer goods in position of gross and environmental concerns. ( Crawford, Keen & A ; Smith,2008 )

Gross Position: As per Ramsay regulation for efficient trade good revenue enhancement, the revenue enhancement degrees across assorted goods /commodities should be reciprocally relative to the Price snap of demand inorder to minimise the perturbations in distribution. Since the demand is ineslatic the revenue enhancement constituent can be higher for the crude oil merchandises.

Environment related facets: Apart from the gross issues as described above, the environmental facets consider the outwardnesss involved by ingestion of the merchandises such as pollution and Global heating. In instance the revenue enhancements are high that proves to be a deterring factor and promotes rationalized use of the crude oil merchandises.

It has been noted that Universal subsidies are non the right solution for protecting the common multitudes in any state.

These factors change with the transition of clip and differs from state to state based on their PESTEL macro economic environment.

In India – Scenario

Indian Government provide subsidy for Kerosene ( distributed through Public Distribution System ( PDS ) ) and for LPG and giving support to assorted PSU OMC ‘s in Indian market for Petrol and Diesel so that the consumers are protected from the volatility in the petroleum monetary values which in general is termed as Subsidy from consumer position and “ Under -Recovery ” from the PSU OMC position.

India ‘s Petroleum Product subsidies: A Timewalk through

1939

Public Distribution System ( PDS ) for subsidized nutrient started

Domestic oil monetary values based on import para

1939-1945

Subsidized kerosine included in PDS for residential consumers

Late 1960

Subsidies for LPG introduced for residential consumers

1976

Petroleum monetary values fixed under the Administrative Pricing Mechanism

1989

Coupon system introduced to command entree to subsidized kerosine in Mysore ( plan closed two old ages subsequently )

2002

APM dismantled ; crude oil monetary values ( other than residential kerosine and LPG ) liberalized

2003

Government intercession in crude oil monetary values

2006

“ Rangarajan ” commission study recommends liberalisation of crude oil merchandise monetary values

2007

“ Smart cards ” considered to command entree to subsidized kerosine ( plan non adopted )

2008

“ Chaturvedi ” study recommends liberalisation of gasolene and Diesel monetary values and alterations to fuel duty and revenue enhancement governments ( recommendations non adopted )

2010

“ Parikh ” expert group recommends market-oriented pricing ( Action program to be implemented )

Informal monetary value controls for the oil sector happened in the twelvemonth 1939 when the OMCs started utilizing the construct of import para pricing. Year 1939 besides marked the twelvemonth in which PDS for subsidised nutrient was launched with the purpose of equal distribution of nutrients at mercantile establishments. World War II marked the clip period when there was immense scarceness of kerosine in the market and demand was felt to ration the distribution of kerosine through the mercantile establishments and thenceforth kerosine was included in the list of PDS for the common adult male. The state of affairs improved after World War II and the things were under control until 1957 authorities reintroduced the construct of PDS as manner to command monetary values including kerosine. Government besides introduced the subsidy for LPG in the ulterior half of 1960 so that the consumer should switch the cooking base from other beginnings like cowdung bars, biomass etc to LPG which is more healthy and has a high calorific value as compared to the beginnings which were being used in 1960s. authorities through assorted policies laid debt trap for the OMCs to subsidise LPG irrespective of the consumer buying power. After the launch of APM ( Administered Price mechanism ) the authorities continue to subsidize kerosine at disbursal of gasoline and Diesel monetary values. After the dismantlement of APM regiem which lasted for more than two decennaries in India, authorities tried to deregulate the oil sector but merely on paper as from the following twelvemonth thr monetary value alteration demand to be approved by Ministry. Considring the thickly settled and Vote bank issues the monetary value of kerosine has seen barely any alteration since 2003 nevertheless the petroleum oil Indian basket has inflated in value footings many creases thereby increasing the underecoveries for the OMCs.

Subsidy bearing

Subsidy for the kerosine and LPG which as per authorities is intended as public assistance step and to insulate common adult male from the high monetary values is borne by authorities and oil companies.

Entire Subsidy = Fiscal Deficit subsidy + subsidy by OMC ‘s

Fiscal Subsidy ( Scheme 2002- valid boulder clay 2014 )

Government is seeking to cut down the Fiscal subsidy on PDS kerosine and LPG. Subsidy on PDS Kerosene and Domestic LPG w.e.f April 2002 is met from the financial budget and has been fixed on a specified level rate footing for each oil installing based on the difference between the cost monetary value and the issue monetary value per selling unit. The mean subsidy during 2002-03 on PDS Kerosene was Rs.2.45 per liter & A ; on domestic LPG at Rs.67.75 per cylinder. The level rate subsidy was reduced by 33 % each twelvemonth during 2003-04 and 2004-05. Since so the subsidy rate for Domestic LPG and PDS Kerosene has been maintained at the 2004-05 degree ( i.e. 33.33 % of 2002-03 degree ) , i.e. 82 paise per liter for PDS kerosine and Rs.22.58/ cylinder for domestic LPG. The Government has made a proviso of Rs. 2900 crore towards subsidy on these merchandises in the financial Budget for 2010-11.

Subsidy on the crude oil merchandises is met partially by the Financial budget and remaning by PSU OMC ‘s ( Oil Marketing Companies ) . A comparative analysis of the subsidy constituents bear by the OMC ‘s and the budget clearly shows that PSU PMC ‘s are shed blooding due to the policies imposed and at the same time the subsidy constituent from budget is acquiring reduced every twelvemonth. It would be important adequate to observe that the entire subsidy on PDS kerosine is much less as compared to entire subsidy on LPG. This raises the inquiry of whether universals subsidy theoretical account is still feasible.

Subsidised kerosine is sold at much lower monetary values than gasoline or Diesel and is often diverted to parallel economic system to be used as conveyance fuel. Approximately 50-60 % of subsidised kerosine reache to the intended donees and staying is seen as escapes from the distribution system. The NSSO informations ( 50th round,55th,61st unit of ammunition ) clearly shows that purchase of kerosine during these clip periods has remain more or less changeless which is non possible sing the gross revenues of OMCs.

Beginning: NSSO, Ministry of Statistics and Program execution

Subsidy in 2010-2011

Year 2010-2011 is besides witnessing increasing in rough monetary value. Petroleum monetary values are traversing 90 us $ per barrel and as the petroleum oil monetary value additions, the subsdies continue to increase. OMCs incur a loss of Rs 6.09 per a liter of Diesel, Rs 17.72 per a liter of kerosine and Rs 272.19 per LPG cylinder which consumer consumes. The authorities had paid Rs 26,000 crore in 2009-2010 to cover up for more than half of the gross losingss of OMCs. At the current monetary value degrees of Indian basket of petroleum it is expected that OMCs would free 68,361 crors and the oil ministry expects at least half of the sum to be borne by Finance ministry Internet Explorer it is consecutive impact on the Fiscal shortage.government has already paid Rs 13,000 crores to the OMCs as portion of Under recovery who have lost Rs 31,367 crores till December 2010.

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Issues & A ; Challenges in subsidy

Subsidy non making the intended donees

Escapes in the distribution construction

Black market

Diversion

Gives rise to black money and parallel economic system

Adulteration of other fuels

Give rise to high revenue enhancement constructions on other fuels thereby further increasing their cost.

Addition in Fiscal Deficit as portion of the subsidy is borne by Finance Ministry through budget.

Way Forward to manage subsidy

There is no uncertainty that state like India wherein people are still hapless and unrecorded in small towns where electricity still has non reached, kerosene demands to be subsidized as bulk of kerosine is used for illuming intent as compared to cooking public-service corporation. However the cosmopolitan subsidy construct demand to be changed and following options can be worked upon

UID cards: Government is implementing Unique Identification Number undertaking and is be aftering to turn over out for all citizens of India in following two old ages clip. The subsidies can be linked with the UID figure along with Census study consequences. This will guarantee that intended donees are truly having the benefits of subsidy.

Use of Solar lanterns: With the coming of engineering, solar lanterns are available in India. The solar lanterns are powered by Sun energy and there is merely initial cost of securing the lanterns and one clip procurance cost is besides subsidized by authorities.

Availability and handiness of electricity: Electricity needs to be reached to all small towns so that people dependence on kerosine as illuming fuel is removed wholly which will cut down the sale of kerosine and thereby cut downing subsidy and bettering the Fiscal shortage of the state.

Monetary value of PDS kerosene is low as compared to other neighbouring states which encourage cross boundary line smuggling and debasement.

Beginning: PPAC

Price rise wil aid in cut downing the componet of subsidy and besides prevent unethical activites across boundary lines.

Price rise can besides be linked with alteration in agricultural GDP. It has been seen that the monetary value of kerosine has remained stable at Rs 9 per liter even though the agricultural GDP has risen over the old ages. The rise in agricultural GDP signify that people can increase their outgo to some fraction and can be n synchronism with the agribusiness GDP.

Beginning: PPAC

Coupon System: In 1989 the voucher system was introduced in Mysore which had really successful consequences. In this system consumers were provided with vouchers and these vouchers were given to PDS tradesman. Peoples could travel at their convenience as tradesman would be selling based on vouchers. These vouchers would be deposited by PDS tradesman and encase the vouchers received are short as compared to the quota allocated his supplies would be reduced or may be debarred. The system rolled out was successful in forestalling escapes form the system, nevertheless the system could non run due to strong anteroom by politicians and kerosine traders. Such type of system with enhanced security model can be launched so that Conditional subsidy can be aimed.

LPG subsidy – manner frontward

LPG being a merchandise which is usually used by peole in urban countries who can afford to utilize the cylinders at increased monetary values.

UID: UID or smart cards can b implemented as in instance of kerosine subsidy.

Deregulate the sector: The LPG sector can be deregulated bit by bit for all urban countries so that the subsidy load is removed and merely a fraction of subsidy would stay for rural consumers.

Conditional Direct Cash Transportation: As in instance of wellness sector where authorities has successfully launched the conditional hard currency transportation strategy under the streamer of NRHM, similar strategy can be launched wherein all consumers can be charged the market monetary value of the cylinder nevertheless intended donees can still acquire benefit by authorities giving them hard currency return through the Bankss.

Oil Chemical bonds

Introduction

Oil bonds were introduced in the Indian oil sector around a decennary back during the term of office of UF Government. Oil sector is the largest revenue enhancement subscriber to the Central treasury and adding more than 75,000 crores on history of Customs and Excise responsibilities.

The crude oil merchandises pricing ( even though APM was dismantled in 2002 ) are still controlled by Indian Government and the OMC ‘s are non allowed to monetary value the merchandises in line with basic rules of Economics Internet Explorer based on Supply- Demand rule. The crude oil merchandises are being sold at monetary value less than the cost monetary value to the refiners.The spread between the monetary value of merchandise in the market and cost give rise to Under Recoveries which is partly refunded in the signifier of Oil bonds. The paradox in the oil sector is astonishing, on one side the authorities imposes brawny revenue enhancements on the merchandises ( more than 50 % on gasoline and 35 % on Diesel ) on the retailing monetary value of the fuel. Since the basic monetary value is high, the revenue enhancement constituent raises the saloon further and the monetary value of crude oil merchandises is seen in so called “ Unaffordable Class ” for the common mass. Inorder to insulate the common adult male the authorities stairss in and subsidise the fuel which takes the particular signifier of oil bonds. The paradox lies in the fact that monetary values are high due to revenue enhancement constituent and so authorities are themselves subsidising the same.

Oil Bonds V Subsidy

Government earlier supported the under -recoveries of the OMCs with combination tool of Oil bonds and hard currency subsidisation. Oil bonds are the coveted signifier of subsidy by the authorities as due to our hard currency based budgeting construction the fiscal entries refering to publish of oil bonds can be kept off from the balance sheet of the authorities ie the budget. It is more important in the current times when Government has the authorization under Fiscal Responsibility and Budget Management ( FRBM ) Act, 2003 wherein authorities is committed to extinguish gross shortage through an one-year decrease of 0.5 per centum points. Besides Government does non hold to blast out money from the cardinal caissons instantly as the bonds mature over a period of clip and merely intrest constituent demands to be paid to the OMCs at regular intervals ( largely on one-year footing ) . Hence authorities was holding dual advantage by publishing the oil bonds as it an meet it financial shortage on documents and on other terminal deffering the payment to oil companies in the fom of hard currency in the same twelvemonth.

However in instance of subsidies to OMCs, through the manner of hard currency transportation to oil companies the economic equation alterations drastically. In this instance the hard currency is transferred same twelvemonth ( on half annual footing or quarterly footing ) which consequences in depletion of nest eggs of the authorities and thereby increasing the Fiscal Deficit figures in the budget. With the higher Fiscal Deficit the authorities adoptions increases which can force the involvement rates further up in the market. The intrest rates can hold batch of impacts as the man of affairs may seek to postpone the new workss or investings which can finally take to lower degrees of GDP as compared to the projected degrees of GDP.

Operationalising of Oil Bonds

The construct of oil bonds being given to Oil selling companies to cover their losingss on history of under recoveries was non put in pattern in the truest sense as it was designed. The authorities was supposed to reimburse the full cost of under recoveries for which OMC ‘s were shed blooding nevertheless as in the FY 2007-08 the under recoveries were at around Rs 70,000 crores but the authorities paid half of the sum in signifier of oil bonds, 33 % to be borne by upstream oil companies ( Upstream oil companies are one which are involved in geographic expedition and production activities of the oil sector ) and staying 17 % by OMCs. The mode of distribution was non as conceived earlier and OMCs distressingly tried to absorb the 17 % from their net incomes, doing the companies confronting the ruddy underside line. Besides the govement paid merely 11,257 crores and the staying sum destiny was hanging for which OMCs were fumbling the dark.

The above illustration shows that inspite of theoretical account being available to authorities the OMCs were non reimbursed as they should hold been reimbursed and the companies were forced to shed blood and stay in bloodletting of under recoveries. It raises inquiries about the modus -operandi of the Government policies and processs.

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The under recoveries has increased over the old ages as depicted in the chart below and Government issued aggregate oil bonds to countervail the shortage in fiscal figures of the OMCs and thereby manitaing their fiscal wellness.

Chart: Under-Recovery Burden and its constituents

The Oil bonds issued by the Government are matured over a period of 5 -7 old ages and besides vary in their position of tradability. The bonds can be tradable bonds 9 which can be sold in the bond markets instantly ) and the other category Non-Tradable bonds ( which can non be traded in the nimble bond markets nevertheless they can be used as indirect security for funding intent ) . Oil bonds besides does non bask the position of Statutory Liquidity Ratio ( SLR ) and it can non be accounted for SLR demands on the balance sheets of Bankss as liquid assets.

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Oil bonds were issued primarly to counterbalance the OMCs and to better their fiscal public presentation nevertheless all the OMCs found it disputing adequate to merchandise the bonds and to keep their fiscal wellness, the bonds were usually discounted by the OMCs in the Bankss to gain difficult hard currency which was required to buy Crude oil. There are chiefly two grounds for the same

Impregnation of bonds market: The Chemical bonds were supersaturated with the assorted types of bonds drifting in the market as oil bonds, fertiliser bonds, authorities security bonds etc Based on simple micro economic rule of Demand Supply, since the supply is more demand is less and the monetary value besides sees downward tendency.

Non SLR position: the authorities has purposefully defined the bond in class of Non SLR. Non SLR position did non actuate the Bankss to honor the bonds as by maintaining the bonds for a period of 5-7 old ages the Bankss can non take these bonds deserving crores of rupees for run intoing the SLR demand of RBI. Incase the bonds had been allocated the SLR position, Bankss would hold happily met their RBI demand of SLR from these bonds and would hold invested their liquid assets in more return country thereby guaranting win win state of affairs for both ie the Bankss and the OMCs.

Sing the above and the urgency of OMCs to hold hard currency Ns manus to buy high value crude these bonds were encashed by Bills discounted techniques and apart from the under recovery losingss, the OMCs were forced to bear the extra load.

Apart from under recoveries which are forced on the OMCs, the other position for the issue is that this monetary value controlled mechanism is applicable to PSU ‘s and non for private sector. this leads to differential selling scheme for illustration Reliance Petroleum is exporting the full merchandise at the monetary values which are related to planetary monetary value index degree and Indian PSU OMC ‘s are shed blooding. Indian Government has recognized the challenges as listed above sing the issues with bonds and has discontinued the pattern of publishing bonds to the OMC ‘s and the subsidies are handled as Cash subsidies in sharing manner.

Restructuring of Taxes and Duties

GOI has complex system of revenue enhancements in the crude oil sector. Crude oil and Petroleum merchandises as Diesel, gasoline are the major beginnings of gross for Central every bit good as State Goverments. In the present construction a mix of specific responsibilities and Ad-Valorem revenue enhancements are imposed on the Petroleum merchandises.

GOI inorder to cut down the load of Under-Recovery on OMC ‘s, needs to apologize the complex revenue enhancement and responsibility construction in line with the subsidy and the issue of bonds. Since the revenue enhancement constituent in merchandises as Petrol is every bit high as 50 % , the revenue enhancement constituent after apologizing will decidedly reduct the load of subsidies on OMC ‘s.

Time period: 2010-11 ( effectual 27-02-10 )

CENTRAL EXCISE AND CUSTOMS TARIFF TABLE

Particulars

A

Customss

CENTRAL EXCISE

A

Basic

Customss Duty

Additional Customs Duty ( CVD )

Additional Customs Duty

Basic

Cenvat Duty

Particular Additional Excise Duty

Additional Excise Duty

Crude Petoleum

A

5 % + Rs. 50/MT as NCCD

A

A

Nil+Rs.2500/MT

as Cess+

Rs.50/ MT as NCCD

A

A

Gasoline

A

7.5 %

Rs.6.35/ltr. + Rs.6.00/ltr SAD

Rs.2.00/ltr.

Rs.6.35/ltr

Rs.6/ltr

Rs.2.00/ltr.

Petrol ( branded )

A

A

A

A

Rs.7.50/ltr

Rs.6/ltr

Rs.2.00/ltr.

High Speed Diesel

A

7.5 %

Rs.2.60/ltr.

Rs.2.00/ltr.

Rs.2.60/ltr.

A

Re.2.00/ltr.

High Speed Diesel ( branded )

A

A

A

Rs.3.75/Ltr

A

Re.2.00/ltr.

LPG

Domestic

Nothing

Nothing

A

Nothing

A

A

Non – Domestic

5.0 %

8.0 %

A

8.0 %

A

A

Kerosene

Palladium

Nothing

Nothing

A

Nothing

A

A

Non PDS

10.0 %

14.0 %

A

14.0 %

A

A

Aviation Turbine Fuel

Nothing

8 %

A

8 %

A

A

Naphtha

Non- Fertilizer

5.0 %

14.0 %

A

14.0 %

A

A

Fertilizer

Nothing

Nothing

A

Nothing

A

A

Bitumen & A ; Asphalt

A

10.0 %

14.0 %

A

14.0 %

A

A

Furnace Oil

Fertilizer

Nothing

Nothing

A

Nothing

A

A

Non- Fertilizer

10.0 %

14.0 %

A

14.0 %

A

A

Light Diesel Oil

A

10.0 %

14 % +

Rs. 2.50/ Ltr

A

14 % +

Rs. 2.50/ Ltr

A

A

Liquified Natural Gas

5.0 %

Nothing

A

Nothing

A

A

Low Sulphur Heavy Stock/ HPS & A ; other Res.

Fertilizer

10.0 %

Nothing

A

Nothing

A

A

Non- Fertilizer

10.0 %

14.0 %

A

14.0 %

A

A

Lube oil/greases

A

10.0 %

14.0 %

A

14.0 %

A

A

Natural Gas [ Gasious province ]

5.0 %

Nothing

A

Nothing

A

A

Petroleum Coke

A

5.0 %

14.0 %

A

14.0 %

A

A

Petroleum Jelly

A

10.0 %

14.0 %

A

14.0 %

A

A

Waxes all types

A

10.0 %

14.0 %

A

14.0 %

A

A

Note:

– Extra Duty of Customs @ 4 % would be levied in stead of gross revenues revenue enhancement / VAT except gasoline, Diesel, SKO ( PDS ) , LPG ( Dom ) , coal, coke and crude oil gases and fuels of Chapter 27 on direct imports for ingestion.

– In add-on to above, Education Cess @ 2 % on aggregative responsibilities wll be charged w.e.f. 9.7.2004 and extra 1 % will be charged w.e.f. 1.3.2007.

– Beginning: IOCL Tariff Statement

Table demoing Gross saless revenue enhancement on crude oil merchandises effectual 01.12.2010

Statement of State – Wise Taxes in % being recovered in Retail Selling Price ( RSP ) for sensitive crude oil merchandises.

A

State & A ; Taxes

Multiple sclerosis

HSD

SKO

LPG

A

A

A

Palladium

Domestic

1

Punjab

A

A

A

A

A

Value-added tax

27.50

8.80

5.00

4.00

A

Cerium

Rs. 1000/KL

A

A

A

A

Extra Tax on VAT

10.00

10.00

10.00

A

2

JAMMU & A ; KASHMIR

A

A

A

A

A

Gross saless Tax

20.00

12.00

A

A

A

Value-added tax

A

A

5.00

4.00

A

Employment Cerium

Rs.3000/KL

Rs.1000/KL

A

A

A

A

A

A

A

3

HIMACHAL PRADESH

A

A

A

A

A

Value-added tax

25.00

14.00

Nothing

4.00

4

Delhi

A

A

A

A

A

Value-added tax

20.00

12.50

5.00

Nothing

A

Air Ambience Charges

A

250/KL

A

A

5

HARYANA

A

A

A

A

A

Value-added tax

20.00

8.8

5.00

Nothing

A

Extra Tax on VAT

5.00

5.00

5.00

A

6

CHANDIGARH

A

A

A

A

A

Value-added tax

20.00

12.50

5.00

Nothing

A

Cerium

Rs.10/KL

Rs.10/KL

A

A

A

Cardinal State Tax

2.00

2.00

2.00

2.00

A

Note: Central time is being recovered at 2 % in retail merchandising monetary value of domestic LPG in Chandigarh since pricing of the same is from a location in Punjab where CST @ 2 % is applicable.

7

Assam

A

A

A

A

A

Value-added tax

27.50

16.50

5.00

4.00

8

CHATTISGARH

A

A

A

A

A

Value-added tax

25.00

25.00

4.00

Nothing

A

Entry Tax

A

A

A

1.00

9

Orissa

A

A

A

A

A

Value-added tax

18.00

18.00

4.00

4.00

A

Entry revenue enhancement

1.00

1.00

1.00

1.00

10

WEST BENGAL

A

A

A

A

A

Gross saless Tax

25.00

17.00

A

A

A

Gross saless Tax Rebate

A

Rs. ( 290 ) /KL

A

A

A

Cerium

Rs.1000/KL

Rs.1000/KL

A

A

A

Value-added tax

A

A

Nothing

4.00

11

JHARKAND

A

A

A

A

A

Value-added tax

20.00

18.00

4.00

4.00

12

Maharashtra

A

A

A

A

A

Value-added tax

25.00

23.00

5.00

Nothing

A

Additional Surcharge

Re.1/Ltr

A

A

A

A

Note: In Mumbai, Thane and Navi Mumbai country, the rate of VAT for MS & A ; HSD is 26 % & A ; Additional Surcharge of Rs.1/Ltr on MS.

A

A

A

A

A

13

MADHYA PRADESH

A

A

A

A

A

Value-added tax

28.75

23.00

5.00

4.00

A

A

A

A

A

14

Goa

A

A

A

A

A

Value-added tax

20.00

18.00

5.00

Nothing

15

TAMIL NADU

A

A

A

A

A

Value-added tax

30.00

21.43

4.00

4.00

16

KERALA

A

A

A

A

A

Gross saless Tax

29.01

24.69

A

A

A

Social Security Cess @ 1 % on Gross saless Tax

1.00

1.00

A

A

A

Value-added tax

A

A

4.00

4.00

A

Social Security Cess @ 1 % on VAT

A

A

1.00

A

17

PONDICHERRY

A

A

A

A

A

Value-added tax

15.00

14.00

Nothing

1.00

A

Cardinal State Tax

2.00

2.00

Nothing

1.00

18

RAJASTHAN

A

A

A

A

A

Value-added tax

28.00

18.00

5.00

Nothing

A

Cerium

Rs.500/KL

Rs.500/KL

A

A

19

Gujarat

A

A

A

A

A

Value-added tax

23.00

21.00

Nothing

Nothing

A

Cess **

2.00

3.00

A

A

A

** Cess is on VAT+Town Rate, Town rate is is Assessable value+Exise duty+Delivery charges

20

UTTAR PRADESH

A

A

A

A

A

Value-added tax

26.55

17.23

4.00

Nothing

A

Extra Tax on VAT

A

A

1.00

A

21

Bihar

A

A

A

A

A

Value-added tax

24.50

18.36

4.00

1.00

22

UTTARAKHAND

A

A

A

A

A

Value-added tax

25.00

21.00

4.00

Nothing

A

Extra Tax on VAT

A

A

0.50

A

23

KARNATAKA

A

A

A

A

A

Gross saless Tax

25.00

18.00

A

A

Entry Tax

5.00

5.00

A

A

Value-added tax

A

A

5.00

1.00

24

ANDHRA PRADESH

A

A

A

A

A

Value-added tax

33.00

22.25

4.00

4.00

25

MEGHALAYA

A

A

A

A

A

Value-added tax

20.00

12.50

4.00

4.00

A

Notes: Surcharge @ 2 % on MS & A ; HSD wef 31.12.1999.

26

Manipur

A

A

A

A

A

Value-added tax

20.00

12.50

4.00

4.00

27

NAGALAND

A

A

A

A

A

Value-added tax

20.00

12.00

5.00

15.00

A

Notes: Surcharge @ 5 % on MS, HSD & A ; SKO wef 16.11.2004

28

Sikkim

A

A

A

A

A

Value-added tax

15.00

7.50

Nothing

12.50

A

Notes: 1. Sikkim Cess @ Rs. 2000/- on MS and HSD per KL wef 01.04.2006

A

2.Sikkim Consumer Welfare @ Rs. 20/KL on MS/HSD retail as Sikkim Consumer Fund wef 01.10.08

29

TRIPURA

A

A

A

A

A

Value-added tax

15.00

10.00

Nothing

1.50

30

ARUNACHAL PRADESH

A

A

A

A

A

Value-added tax

20.00

12.50

4.00

4.00

31

MIZORAM

A

A

A

A

A

Value-added tax

18.00

10.00

Nothing

2.00

32

UT – DADRA & A ; NAGAR HAVELI

A

A

A

A

A

Value-added tax

20.00

20.00

4.00

4.00

33

UT – DAMAN & A ; DIU

A

A

A

A

A

Value-added tax

20.00

20.00

4.00

4.00

34

UT- LAKSHADWEEP

A

A

A

A

A

Value-added tax

Nothing

Nothing

Nothing

Nothing

35

UT – ANDAMAN & A ; NICOBAR ISLANDS

A

A

A

A

A

Value-added tax

Nothing

Nothing

Nothing

Nothing

– Beginning: Sr. No. 01 to 24: Based on HPCL Monthly Statement of Taxes.

– : Elder No. 25 to 35: Based on IOCL Monthly Statement of Taxes.

The above tabular array on Customss and Excise and another tabular array which enumerates the revenue enhancement construction in assorted provinces clearly spells out the complexness involved in the revenue enhancement construction which becomes more complex when Ce is imposed on certain merchandises.

The revenue enhancement construction by the province authoritiess besides imposes certain Ce on crude oil merchandises which are non really related to Petroleum merchandises bringing nevertheless since the demand is conceived to be “ Inelastic ” the authorities imposes the Ce or extra revenue enhancements for which the common adult male is incognizant of as in the undermentioned provinces

Name of State

Cerium for / Additional revenue enhancement for

Rate at which applied

Jammu & A ; Kashmir

Employment

Rs 3000 / Kl

Delhi

Air atmosphere charges

Rs 250/KL

Punjab

Reason non specified

10 %

Harayana

Reasons non specified

5 %

Kerala

Social Security Cess

2 % on VAT, Gross saless revenue enhancement

Gujarat

Reasons non specified

2 % -3 % ; Cess is on VAT+Town Rate, Town rate is is Assessable value+ Exise duty+ Delivery charges

Sikkim

Sikkim Consumer Welfare fund, Sikkim Cess

Rs 20/ KL for public assistance, Rs 2000/ Kl on Sikkim Ce

As seen from above tabular array the State Government imposes taxes/ Ce for Air atmosphere charges or public assistance fund and in some instances the consumer is non even told why the Ce has been applied on the monetary values. The revenue enhancements are built-in and even the measures which are dispensed to the consumers does non give the dissolution of the basic monetary value and revenue enhancements involved maintaining the consumers in dark. On the other manus Government is supplying subsidy to NE provinces ( which s released by Center ) and on the other manus the province GOverments are increasing the monetary value by manner of extra revenue enhancements or Ce, thereby make fulling their ain province caissons and go forthing the consumer bone prohibitionist. While the GOI has shown willingness to apologize the revenue enhancements construction, nevertheless province authoritiess have been largely unwilling to sabotage this monetary value issue and inelastic beginning of gross. It is besides important to observe that most of the provinces in India have moved their revenue enhancement structre to level construction alternatively of ad-valorem type construction so that in instance of monetary value fluctuations their gross remains committed. As shown in chart the gross aggregation of Center fluctuates as GOI tries to apologize the responsibilities nevertheless provinces grosss has gone up in the old ages from Rs 60,000 crores to Rs 70,000 Crores ie difference of 10,000 crores in merely 4 old ages. It alos implies that sing the population of 100 crores in India, each citizen irrespective he is consumer or non is lending / disbursement Rs 25 per twelvemonth supernumerary on history of addition in State Taxes on Petroleum Product.

Therefore there is clear emerging issue of “ Fiscal Imbalance ” within the system of Petroleum Market. On the one forepart, Cardinal Government is rying to cut the revenue enhancements and responsibilities but increasing the fiscal spendings in the signifier of bonds and on the other war front the provinces continue to harvest revenue enhancement grosss from the common adult male.

Is Cuting Tax the solution?

Cardinal Government has tried to cut down the revenue enhancement load but merely cutting the revenue enhancement rates at the centre degree and provinces increasing at provinces degree does non turn to the ssue of crude oil privcing in India. Infact by cutting revenue enhancements GOI riskes sabotaging a important input of gross beginning ( which can be used for assorted other societal activities like NRHM, Infrastructure development ) , while proviing merely a partial solution to the pricing issue. In fact, by cutting revenue enhancements it undermines its ability to fund the quickly increasing spendings required to back up the subsidies government. Besides by cut downing revenue enhancements now will do it really hard for future authoritiess to raise revenue enhancement rates on crude oil merchandises in the hereafter, which can strip policy shapers of a cardinal demand-side direction of Fiscal Deficit in India. This complex system of revenue enhancements and responsibilities need to be rationalized so that common individual has the visibleness of the part to the treasury.

Fiscal and Macroeconomic Instability

The of all time increasing subsidy load on Indian Budget and Under recoveries of OMCs have dented profoundly the Indian financial and macroeconomic environment.

Beginning: PPAC

In the twelvemonth 2008-2009 the revenue enhancement constituent received by the authorities and the entire under recoveries are about equilibrating as the subsidy load is continually increasing and the GOI has reduced revenue enhancements on certain crude oil merchandises thereby cut downing the spread between gross and outgo on twelvemonth to twelvemonth footing. With the of all time increasing expenditureand falling grosss, the GOI is happening it hard to prolong the construct and forcing authorities to consolidate its disbursement form in other countries of budget or may it has shown unwillingness to provide to the increasing rift between gross and outgo. In the current twelvemonth the Government has directed that portion of the oil subsidy needs to be borne by the OMCs.

The extremums in the oil bonds has led to considerable budgetary spreads in Indian Budget. With the lessening in grosss and continually lifting outgo the authorities Fiscal shortage more than doubled from 2.56 % ( FY 2007-2008 ) to 6.05 % in FY 2008-09. Entire province and authorities debt is being estimated to be 72 % of GDP in the FY 2009-2010.

Beginning: RBI tabular array no 234

Beginning: RBI tabular array no 237

India has been rated on Economic scenario as

Baa3: Moody ‘s

BBB- : Standards & A ; Poor peoples ( S & A ; P )

BBB- : Polecat

The evaluation gives as indicant to the outside universe how stable the state is in footings of Economic parametric quantities. S & A ; P has commented in their study that India ‘s financial shortage is wholly unsustainable in the medium-term and has warned that without touchable marks of financial tightening, it will downgrade India ‘s autonomous recognition from BBB ( its lowest investing class ) to “ debris ” position evaluation. Encase the evaluations are downgraded it will merely decline the consequence of large-scale oil bond issue on the wellness of authorities

fundss. Due to the consequence of several old ages of accrued off-budget debt issue, 24 % of general authorities gross goes as involvement payments on authorities debt. Sovereign “ debris ” position will coerce investors to demand higher involvement rates on Indian authorities paper, both for oil bonds, other off-budget debt issue and general authorities adoptions – which itself will increase the proportion of the GoI ‘s grosss devoted merely to involvement payments on debt. Besides if oil bonds are given greater SLR position, general authorities adoptions will hold to vie with these securities for purchasers – once more seting upward force per unit area on authorities paper involvement rates.