In order to immunize the finances of Indian Railways from the diesel price hike, industry body Assocham asked government to allow the public sector undertaking to import and refine its own crude oil.
By importing and refining crude oil by itself, the Indian Railways can avoid paying about 20-25 percent sales and other local taxes on diesel. The Railways, run as a government department, is the biggest consumer of diesel in India, and runs a substantial portion of its trains on the fuel.
Setting up a refinery for own-use would allow the Railways to bypass most of the taxes except the import duty, which is usually about 5 percent for commodities such as crude oil.
To cope with the rise in diesel price, the railways hiked freight charges by 5 percent. It has also suggested an automatic fuel price linkage in freight charges. Such a move will have a cascading effect, Assocham said.
The only way to meet the two objectives of avoiding a steep increase in railway fares and keeping the subsidy bill down was to allow the Railways to import and refine its own crude, the chamber said.
The association pointed out that even as the decision to raise diesel prices for bulk customers may allow the government to cut back on subsidies, it will make railways operations unviable without raising freight prices.