The Union Finance Ministry has suggested changes in the way petrol and diesel are priced to cut subsidy bills.

The Finance Ministry has suggested exclusion of the element of import duties to save an estimated of Rs 18,000 crore in subsidy bills. According to the Finance Ministry, auto fuel requires to be priced at export parity and not at import parity.

The Ministry has informed the Oil & Gas Ministry that it plans to remove the 2.5 per cent import tax on petrol and diesel as the duty on diesel was adding to the state-run oil marketing companies' under-recoveries, without making any contribution to revenue to the exchequer.

The state-run oil marketing companies, viz. Indian Oil Ltd, Hindustan Petroleum Ltd and Bharat Petroleum Ltd, together will end this fiscal with under-recoveries or revenue loss of Rs 1,60,000 crore on account of selling diesel, LPG and kerosene below cost. The government likely will pay around Rs 100,000 crore; while the remaining Rs 60,000 is expected to come from the upstream oil companies such as ONGC.

A few of years ago, the government cut the duty to 7.5 per cent on finished products and to 2.5 per cent on crude oil. Then, the government dragged the duty on crude oil to zero and that on finished products to 2.5 per cent, decreasing the protection that refiners had been enjoying from cheaper imported fuel.

Now if the government brings import duty on fuel to zero, the domestic refineries will not have be left with protection.