By TIOL News Service

NEW DELHI, Mar 01, 2006 : A healthy growth rate in GDP (7.5% in last three years) has helped in bringing down the revenue deficit to 2.6 per cent and the fiscal deficit to 4.1 per cent. And it has given enough reason to the Finance Minister to throw some goodies to almost all the sectors but not to the petroleum sector. Though the Petroleum Minister has welcomed the overall budget and termed it as “growth oriented” but he might have forgotten that it is not good enough for the growth of the overall industry, which he is heading for. And surprisingly the oil PSUs are the biggest contributor to the exchequer!

Though there is a reduction in customs duty on crude, petroleum products, along with naphtha, natural gas, propane and butane but that was very smartly neutralised by hiking the cess leviable on crude from Rs 1800 to Rs 2500 per tonne. What is more important here is that whatever little sop was given by the Finance Minister was basically confined to the downstream companies (refineries and marketing cos). And what is snatched away by the hiked cess will badly hit mainly the upstream companies, where the foreign investment is more required. Experts believe that seeing the already announced sixth round of licensing policy for exploration and production, this decision is definitely not going to encourage the upstream companies, which are looking forward to invest in India.

Moreover, in the form of countervailing duty (CVD) of 4% the Finance Minister has roped in the petroleum industry along with the other sectors. The nitty-gritty under CVD will be clear only after few days when the companies will calculate the exact monetary impact of CVD. But meanwhile if we see FM’s announcement of domestic cooking gas as 'Declared Goods' then we will find that though the oil marketing companies will gain more than Rs 1,400 crore from the move but, seeing the losses of OMCs it is very unlikely that the companies will pass-on the benefits to common man. So here too the benefit is not going to be passed on to consumers.

As far as the two segments of the industry – upstream and downstream segments - are concerned; the downstream companies are surly having the upper hand as compared to the upstream companies. And it seems that government is now targeting the healthy E&P sector. One never knows that the upstream companies involved in heavy risk of exploration and production may soon follow the footsteps of downstream companies in loss making.

To start with the Indian E&P behemoth – ONGC - the estimated additional contribution to the exchequer is going to be about Rs 1,800 crores. That means a straight away hit on the bottom-line of the company. And needless to mention the Service tax, which is already leviable on exploration activities but, since there is no excise duty on the output, the companies are not eligible for availing CENVAT credit. So overall, there is a consequent increase in cost of production, which in fact works, as deterrent for the companies, which want to participate in the Indian licensing policy.

Again when we talk about concessional project rate of 10 per cent for pipeline projects (for transportation of natural gas, crude petroleum and petroleum products) it is only confined to the downstream companies, which is confined to a handful of companies.

Well, the announcement for setting up a task force to facilitate development of large PC&P Investment Regions (which is expected to be developed in 2006-07) is one of the only decisions, which can be considered good for the industry. But seeing the negative fiscal incentives this decision too looks too minuscule. Especially when we talk about a common man, the finance minister has failed to give any smiles on the face of “aam-admi”. And industrywise, there were no benefits for the upstream companies where more investment is required. And for the downstream companies whatever the finance minister has given was necessary. Or let’s say there was no choice left for him.

Finally, can the Finance Minister give any rationale behind setting up the Rangarajan Committe and many such committees meant to address the concerns of aam admi and the industry and its taxation matters as whole?