After the dismantling of the APM from April 2002, the players were given a free hand in fixing product prices and hence determine the profit margins. However, despite deregulation there exits ambiguity in issues such as subsidies phase out timeframe and rationalization of duties. The industry continues to bear the burden of heavy subsidies on products such as LPG and kerosene. Schedule for implementation of phasing out of these subsidies will benefit the industry immensely.

Duty exemption on capital goods for refinery expansion/grass root refinery/environment related quality up-gradation projects.

Special Additional Duty (SAD) on imports should be extended to all petroleum products in order to counter Central Sales Tax (CST) levy on Indian refinery products.

Introduction of specific rate of excise duty on petrol, diesel, kerosene and LPG to remove the shortcomings of current ad-valorem duty structure

The reduction of excise duty on kerosene to 4% is expected to have a moderately positive impact on kerosene consumption as a result of reduction in prices.

Increased cess of 50p on diesel to fund infrastructure is expected to further push up prices of the product. After showing negative growth for the last two years, the Diesel consumption has shown growth of 2% during first six months of FY03. However, the demand might be negatively affected on back of the increased taxes, which the marketing companies are likely to pass on to the consumers.

While higher thrust on concrete roads will result in lower demand growth for bitumen. This is expected to hit the refineries hard, companies had built up capacities on expectation of future growth. However, lower excise duty on cars and CV's (commercial vehicle) will result in increased affordability for these products and therefore, resulting in higher demand for light and middle distillates (petrol and diesel).

Lower customs duties on capital goods for LNG plants will auger well for the sector, as the budget measure lower the cost of setting up an LNG project. This will in the long run lower the prices of gas to the final consumer, as break-even point for the projects. Given the Governments' thrust on reduction of dependence on crude oil in future, this is an incentive given to attract significant investments from private and public sector companies in the future.

Excise duty on LPG, petrol, kerosene to remain at levels of 8%, 32% and 8% respectively.

50% cess on petrol and diesel will be utilized for funding road projects including the NHDP

CNG to be charged 8% excise duty in line with duty on LPG and kerosene. Excise duty on petrol, which was not levied earlier, to be at 16%.

Service tax on vehicle service stations.

LNG exempt from CVD.

Subsidy on essential commodities notably LPG and kerosene to continue, albeit at a lower rate. This included the freight subsidy to far-flung places. As a result prices of LPG cylinder increased by Rs 40 per cylinder and kerosene by Rs 1.5/litre. Such subsidies to be reduced over a 3-5 year time frame.

Cess on crude increased from Rs 900/tonne to Rs 1800/ tonne.