Pradhan says tax cuts cannot keep oil prices low for long

Even as petrol and diesel prices are scaling new highs every day, oil minister Dharmendra Pradhan Wednesday said reducing taxes on these items will not have any lasting impact due to the continuing volatility in crude prices.

Petrol prices have crossed Rs 90 a litre in many states while diesel is selling at over Rs 80 a litre, due to high VAT rates that states charge on these items. While Maharashtra has the highest VAT on oil products in the country to the tune of over 39 per cent, making almost 53 per cent of the price that a motorist pays is taxes, Goa, Delhi and Chandigarh have the lowest VAT rates.

Ahead of the US sanctions, kicking in from November 4 on Iran, crude prices have been on an upward spiral and Brent--the benchmark price for the Indian crude basket--is trading over USD 80 a barrel now. Compounding the matter, the rupee has been plumbing new lows having already touched the 73 mark last week.

Since the beginning of this January, crude has rallied over 30 per cent, when the rupee has lost almost 15 per cent.

The country meets 82 per cent of its oil demand through imports.

Blaming global factors for the skyrocketing prices of petroleum products in the country, Pradhan said reducing taxes on oil products by the Centre and the states will not have any lasting impact due to the volatility in crude prices.

"The basic problem is that crude prices are volatile.

The effect of any measures, including reduction in VAT by the states and the Excise duty by the Centre will not last long due to the volatility in crude prices," he told reporters.

"And as long as there is no stability in crude prices, this kind of assessment will not be appropriate," he added.

The minister, however, said higher prices is a matter of concern and government is finding ways to offer some relief to the public.

"Currencies across the world are falling due to the strengthening of the US dollar. The main reason for the rise in petroleum products has been the rupee depreciation and a cut in crude production by the producing countries," he said.

The minister's comment come amidst the Opposition in the state is trying to rake up the issue of spiraling prices of diesel and petrol ahead of the assembly elections in three BJP-ruled states of MP, Rajasthan and Chhattisgarh.

These states are going to polls in weeks and Pradhan expressed hope that the BJP would do well in the ensuing assembly elections.