With softening global oil rates leading to first ever profit on diesel sales, the government is considering raising excise duty on unbranded diesel to take away the gains.
State-owned oil companies are making a profit of 35 paise a litre from this week after falling international prices wiped away losses or under-recovery on the nation's most consumed fuel.
The Finance Ministry has written to Oil Ministry seeking its view on raising excise duty on unbranded diesel, a senior finance ministry official said.
"Since diesel prices is coming down so we have written to Petroleum Ministry asking if there any scope for raising excise duty on unbranded diesel," he said.
Normal or unbranded diesel currently attracts basic excise duty of Rs 1.46 a litre and an additional excise duty of Rs 2 per litre.
In comparison, branded or premium grade diesel is levied with a total excise duty of Rs 5.75 a litre.
The differential in duty rates results in varied prices of the two -- a litre of normal or unbranded diesel costs Rs 58.97 while branded fuel is priced at Rs 62.34.
A similar differential exists on petrol as well -- a litre of branded petrol costing Rs 73.47 while unbranded version coming for Rs 68.55.
Under-recovery or the difference between retail price and its imported cost on diesel was 8 paise per litre in the first half of September.
The under-recovery in the second half has turned into over-recovery or profit of 35 paisa per litre.
Had diesel prices been deregulated like petrol, rates would have been cut for the first time in over five years.
Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86.
Since then rates have only increased as international oil prices climbed.
Since January 2013, diesel prices have been raised by up to 50 paise a litre every month to eliminate under-recoveries.
Deregulation would give oil companies powers to change rates in tandem with cost like they do in case of petrol since June 2010.
Oil companies calculate the desired retail selling price of petrol and diesel on 1st and 16th of every month based on average international benchmark price and rupee-dollar exchange rate.
