Together, PM Gujral and FM Chidambaram have a balancing act to do.

NEW DELHI, May 13: Prime Minister IK Gujral has called a meeting of finance minister P Chidambaram and minister of state for petroleum TR Baalu on Thursday to discuss an oil price hike and a possible cut in excise and customs duties on petroleum products.

Gujral is expected to try to mediate on the conflicting views taken by the petroleum and finance ministries on the the issue of duty cuts.

The finance ministry is in favour of looking at the Rs 16,000-crore oil pool deficit in terms of `stock' and `flow' concepts. The ministry is of the view that the government should try to plug fresh accruals or `flows' into the oil pool account by hiking end-product prices.

"Instead of trying to wipe out the entire deficit through a giant price hike, a moderate increase should be attempted which will stem the `flow' and will help chip away at the overall deficit or the `stock' over a period of time," revenue secretary NK Singh told The Financial Express. Looked at in this context, the price rise will not be very high.

Gujral will have to arbitrate on the petroleum ministry's demand for a five per cent cut in excise and customs duties so that the escalating oil pool deficit can be tackled with a moderate increase in end-product prices. The duty cuts will reportedly cost the exchequer a whopping Rs 6,000 crore and, to that extent, the magnitude of price hike can be reduced.

But the finance ministry's stand on the issue seems to be inflexible, at least for for the moment. "We cannot afford a loss of such magnitude, especially when we are pursuing a high resource mobilisation target in the context of a sharply reduced incidence of direct and indirect taxation rates," Singh said.

When it was pointed out that the finance minister did hint at the Asian Development Bank meet in Japan last week that a mix of duty cuts and price increase could be explored, Singh said that the ministry had not undertaken any duty cut exercise on petroleum products.

The finance ministry has also rejected the demand for return of roughly Rs 4,000 crore which was apparently appropriated by it from the oil pool account a few years ago. Nor is it in favour of returning what the petroleum ministry has termed a Rs 4,360-crore bonanza reaped by the exchequer in 1996-97 on account of a rise in international prices of crude and other petroleum products and higher duties. "In order to return the so-called bonanza, the government will have to cut expenditure to the same extent. No such exercise or provision has been made," an official in the department of expenditure pointed out.

With the finance ministry taking an obstinate stand on the issue of duty reduction, the petroleum minister's gameplan of tackling the oil pool deficit may well come unstuck. He is in favour of dual pricing of diesel, removal of subsidy extended to petroleum products used by the fertiliser industry, a return of excess duty mop-ups by the finance ministry and lower duties. Also proposed is a sharp raise in LPG prices on the ground that only the high-income groups benefited from the subsidy on cooking gas.

The prime minister, who is also the minister in-charge of petroleum, will have a difficult task in hand on Wednesday as he tries to find a compromise between the differing positions taken by the petroleum and finance ministries. He will have to take into account the anti price rise sentiments within the United Front. In this context, a dual strategy -- involving a mix of duty cuts and price hikes -- may be explored, according to sources.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.