Indian Petroleum Minister, Mr. Murli Deora has sought a phased withdrawal of excise duty on diesel. To start with, Deora wants the excise to be reduced by Re 1 ($0.023) per litre in this year’s budget.

In his meeting with the Finance Minister, Mr P. Chidambaram, the petroleum minister also sought infrastructure status for oil and gas exploration business and pipelines.

“Yes, we are for reduction in excise duty on diesel. Despite the fall in international crude prices, oil companies continue to make a loss of Rs 0.50 ($0.011) a litre on diesel. Besides, such a duty reduction would help contain inflation,” Mr Deora told media persons in New Delhi after an hour-long meeting with Finance Minister P. Chidambaram.

He, however, declined to elaborate further on his Ministry's demands for the Budget.

According to sources, the infrastructure status for oil and gas exploration business and pipelines was sought to encourage prospects in unexplored basins and promoting use of environment friendly natural gas as fuel. The extension of infrastructure status would entitle projects to avail of a 10-year income tax holiday.

The Petroleum Ministry was seeking a shift to specific duties on fuel from the current mix of ad-valorem and specific duties. The current excise duty on diesel is 8.16 per cent plus Rs 3.32 ($0.07) a litre - the two together translating into a total levy of Rs 4.98 ($0.115) per litre. Last year, excise duty on diesel was Rs 3.41 ($0.079) per litre.

According to sources, Deora wants diesel to be eventually treated like kerosene and LPG, the two essential cooking fuels on which the government had completely withdrawn excise duty in the last budget.

Sources said revenue from excise duty on diesel has increased to Rs 242.14 billion ($5.63 billion) in 2005-06 from Rs 163.38 billion ($3.79 billion) a year ago.