Allocation of fuel cess — GoM to lay a new roadmap

P. Manoj     Monday, Oct 04, 2004            Business Line

Following differences, the Government has set up a Group of Ministers to work out a formula for the allocation of additional fuel cess. This would pave the way for an amendment to the existing Central Road Fund Act, 2000.

THE Government has set up a Group of Ministers (GoM) to work out a formula for the allocation of the additional fuel cess of 0.50 paise per litre each on petrol and diesel levied and collected since April 1, 2003, for road development in the country following differences among the Department of Road Transport and Highways, the Railway Ministry and the States on the pattern of distributing the funds.

The GoM's recommendation would pave the way for an amendment to the existing Central Road Fund Act, 2000 which sets out the allocation pattern for the Re 1 per litre cess each on petrol and diesel collected since June 2, 1998 and March 1, 1999 respectively for funding the highway development projects.

As per the formula set out by the CRF Act, 50 per cent of the Re 1 cess collected on diesel would be allocated to the Ministry of Rural Development for the construction of rural roads. The balance and the entire Re 1 cess on petrol would be distributed in the ratio of 57.5 per cent for the development and maintenance of National Highways, 12.5 per cent to the Railway Ministry for the construction of rail over- under-bridges, and 30 per cent to the States for the development of State roads.

With the Centre taking up more National Highway development projects necessitating incremental funds through cess receipts, the Department of Road Transport and Highways has made out a case for adopting a different formula for distributing the additional cess of 0.50 paise per litre each on petrol and diesel other than the one spelt out by the CRF Act for allocating the Re 1 per litre cess each on petrol and diesel.

Accordingly, the Department of Road Transport and Highways has suggested that 50 per cent of the additional cess of 0.50 paise per litre on diesel (that is, 0.25 paise per litre) be allocated exclusively for rural roads. The balance 50 per cent of the diesel cess (0.25 paise per litre) and the entire additional cess of 0.50 paise per litre on petrol is to be given to the Department of Road Transport and Highways to be utilised solely for the development of the National Highways.

A proposal in this regard was recently taken to the Cabinet Committee on Economic Affairs (CCEA). "But with the Railway Ministry and the States opposing the new formula proposed by the Department of Road Transport and Highways, the CCEA has referred the matter to a GoM," a Highways Department official said.

Though the additional cess of 0.50 paise per litre each on petrol and diesel have been levied and collected since April 1, 2003, not a single paise has been released so far from this corpus (estimated to mop up Rs 2,600 crore annually) in the absence of a formula on allocating the funds to the beneficiaries.

In fact, the Department of Road Transport and Highways has identified the non-receipt of additional cess funds as one of the main constraints, among a slew of other factors, in the progress of the National Highways Development Project (NHDP) since this has already been factored into the financing of the ambitious highway development programme.

It has urged the Finance Ministry to immediately release funds from the additional cess receipts, as per the existing formula under the CRF Act for 2003-04 and, subsequently, according to the amended formula worked out by the GoM.

The National Highway Authority of India (NHAI), which is entrusted with the task of implementing the NHDP, has borrowed funds from the market by securitising the cess receipts. This means that the lenders will have the first charge on the cess receipts flowing to the NHAI. Apart from lack of funds to take up more projects, the non-transfer of additional cess funds would hit the repayment plans of the NHAI, the official said.

India   -       

Central Road Fund. The CRF was established in 1930 and revitalized under the Central Road Fund Act, 2000. Together with the increasing number of PPPs, the CRF has been the most significant development in the road sector in India in recent years. It has brought considerable new resources to finance the development and maintenance of the National Highway and State Highway network and the construction of new Rural Roads. These additional resources are generated through an explicit cess on fuel (petrol and high speed diesel), and their allocation to national highways, state highways, and rural roads has been clearly defined in the Act. The Fund currently collects around US$ 1.23 billion annually.

The CRF is at present an accounting mechanism, under the Ministry of Finance, without any capacity of its own to negotiate work programs with road agencies, scrutinize disbursement applications, or commission financial or technical audits of expenditure.

 Kerala

State Road Funds. There has also been experimentation with dedicated road funds at the state level. Assam, Kerela, Maharashtra, and Uttar Pradesh have established road funds while many other states governments are moving towards setting up such funds.

These state road funds are financed by multiple resources: budgetary support from central government and state government, direct road user charges from cess on fuel, motor vehicle taxes, fees and tolls, indirect road user charge/tax such as hotel tax and levy on agriculture products, and other resource such as fines, loans. Similar to CRF, these road funds are used both for development and maintenance of road network, except the one in Uttar Pradesh, which is dedicated for road maintenance.

In addition, some states also established road funds for the development and maintenance of district and rural roads. Madhya Pradesh has the Farmer’s Road Fund, and Karnataka established the Chief Minister’s Grameen Raste Abhivrudhi Nidhi (CMGRAN).

The Hindu         Friday, Jan 23, 2009

        Prepare d by task force headed by Arun Herur   

It includes north-south transport corridor, developing missing links of hill highway

Rs.54,000-crore outlay in the next 12 years

THIRUVANANTHAPURAM: The draft Kerala road development policy, released by Public Works Minister Mons Joseph here on Thursday, proposes introduction of a cess on fuel, levy on utilities and services on road sides and a deterrent fee on luxury vehicles to fund higher levels of road development over the next 12 years.

The draft, prepared by a task force headed by consulting transport planner Arun Herur, emphasises improvement of quality of existing roads, development of a north-south transport corridor and development of missing links of the hill highway and coastal roads. The draft policy estimates an outlay of nearly Rs. 54,000 crore for road development over the next 12 years, which works out to an annual requirement of about Rs. 3,000 crore during the first two years and Rs. 4,700 crore during the next 10 years. Of this, Rs. 550 crore is to be raised as additional revenue into the Road Development Fund through user fee and other levies. The draft proposes that the government amend the Road Development Fund Act to enable the fund to function and operate as an autonomous financial institution.

Revenue potential

There is a potential to mobilise over Rs.100 crore to the fund a year if tolls are introduced on the improved network of State highways.

Currently, 10 per cent of the motor vehicle registration fee amounting to Rs.30 crore goes into the fund every year. This should be increased to 20 per cent. The provisions of the Highway Protection Act could be used to mobilise additional revenues. As development of highways results in enhancement of land values, 10 per cent of revenue earned from land registrations and transfers besides fee for granting changes in land use should be allocated to the fund.

States diverting fuel cess funds to meet revenue expenses

C. Shivkumar        Business Line Thursday, Dec 02, 2004

"Diversion of such dedicated funds to funding revenue expenditure had led to arrears in maintenance in most of the State and national highways."

Bangalore , Dec. 1

STATES have quietly begun transferring funds received from their share in the diesel and fuel cess for meeting their respective revenue expenditures.

States receive close to about Rs 3,000 crore each year as part of their share in the fuel cess. This share of the States is determined under the Central Road Fund (CRF) Act amended in December 2000. These funds are essentially to be used for meeting the maintenance expenditure of the State highways.

Part of the funds released from the CRF was also to be used for meeting the maintenance expenditure of highways that were outside the purview of the National Highways Authority of India. Under Government guidelines, the State public works departments were responsible for maintenance of some of the national highway using Central funds.

Sources said the diversion was possible because few States had earmarked the CRF resources. Under the amended CRF, funds raised through the twin cesses on diesel and petrol amounting to about Rs 1.50 per litre was to be utilised only for highway development in the country. However, none of the States currently have any such statutes in force. Instead, the sources said, funds received from the CRF as part of the States' share was credited to the consolidated fund of the respective States and utilised for meeting the revenue expenditure. States fear that that earmarking the resources would lead to an increase in fiscal deficits. The sources said that most States, strapped for cash were utilising these funds for payment of salaries, debt service obligation and subsidies.

None of the States were willing to either rationalise these components of expenditure or opt for increasing their revenue mobilisation efforts. In fact, it was the absence of both these kinds of efforts that was responsible for the fiscal mess at the State level, the sources said.

Diversion of such dedicated funds to funding revenue expenditure had led to arrears in maintenance in most of the State and national highways, the sources said. Maintenance arrears had accordingly led to severe deterioration of the State highway network and a consequent escalation in costs or rehabilitation. It was this deterioration that had recently provoked protests from the information technology industry in Karnataka.

The deterioration had also triggered concerns in the Planning Commission, the sources said, which favoured earmarking of the CRF share to States only for meeting the arrears in maintenance and for development of new highway projects.

But some of the States like Harayana favoured softer options. States were in fact pushing for conversion of State highways into national highways and at the same time also wanted a greater share in the CRF, linked to the actual collection from the respective States for meeting the maintenance arrears, the sources added.