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Budget may announce increase in road cess

To boost spending on roads and highways, Finance Minister Arun Jaitley is likely to announce an increase of Rs 1-2/litre in the road cess on petrol and diesel. Currently, road cess on the two products is Rs 2/litre.

Business Standard has learnt from multiple government sources that the Ministry of Road Transport and Highways has proposed an increase and that the finance ministry is likely to accept it as part of the Budget.

The road ministry has put forward two proposals before the Prime Minister’s Office and the finance ministry. The first is to increase the road cess by Rs 1/litre and levy a two per cent surcharge on new vehicles. The second seeks a Rs 2/litre increase in the cess.

“There is a possibility that the first proposal might come under criticism from automakers and is unlikely to be taken up. The proposal to increase the cess by Rs 2/litre is more doable,” said a senior official.

Road Minister Nitin Gadkari has repeatedly said the government is committed to building 15,000 km of roads, as part of its ambitious surface infrastructure drive, which includes all-weather roads across villages and enhanced port connectivity.

Under Gadkari, the road ministry has been seeking more funds, as it plans to award road projects primarily through the EPC (engineering, procurement and construction) route, rather than the public-private partnership model. During the past few years, the interest of the private sector in the roads sector has fallen sharply, forcing the government to take the EPC route for awarding road projects.

Though a new government at the Centre has led to hope of a turnaround in the overall economy, with a few private companies evincing interest in the road sector, nothing concrete has happened yet.

The road cess comprises additional excise and customs duty on motor spirit (petrol) and diesel. According to 2014-15 Budget documents, in 2013-14, road cess receipts stood at Rs 19,632 crore. As such, a Rs 1-2/litre increase in the cess could increase the government’s revenue by Rs 9,800-19,000 crore.

For 2014-15, proceeds from additional excise duty on petrol and diesel have been budgeted at Rs 21,400 crore.

EYES ON THE ROAD
  • Current road cess on petrol and diesel at Rs 2/litre; could be increased in the coming Budget by Rs 1-2/litre
  • Road ministry had made two proposals — one for Rs 1/litre hike in road cess and a 2% surcharge for new vehicles; the other for Rs 2/litre hike in petrol/diesel cess
  • Officials say second proposal more feasible, may be part of Budget announcements
  • Govt’s plan includes 15,000 km of roads across villages and greater port connectivity
  • Road ministry has also asked for increase in Plan budgetary allocation

Proceeds from the cess go to what is known as the Central Road Fund, used for development and maintenance of national highways, state roads, rural roads, construction and maintenance of bridges and level railway crossings.

A finance ministry official said a proposal to include a rise in road cess in the FY16 Budget was under discussion and was likely to be accepted, as the government needed funds to boost public spending on infrastructure projects.

In his mid-year economic analysis in December, Chief Economic Advisor Arvind Subramanian had made a case for increased public investment. Such investment should drive economic growth and act as a stimulus to more private investment, he had said.

On midnight of January 2, the government had raised regular excise duties on petrol and diesel for the third time in seven weeks, saying the proceeds from this would fund an “ambitious infrastructure programme”.

India’s annual consumption of diesel is 68.4 million tonnes (mt), while petrol consumption stands at 17.1 mt.

Officials said apart from the rise in cess, the roads ministry had also sought an increase in the Plan budgetary allocation. Under this head, the ministry was allocated Rs 26,238 crore this financial year. A part of that, however, might be slashed as part of the government’s expenditure cuts.

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