Budget 2008-09 has proposed a change in the excise duty structure of petrol and diesel. In his budget proposals, finance minister P Chidambaram said he wanted to abolish the 6 per cent excise duty on petrol and diesel while raising the flat rate component by Rs1.35 a litre.

"I propose to abolish ad valorem part of excise duty on unbranded petrol and unbranded diesel and replace the same by equivalent specific duty of Rs1.35 per litre," Chidambaram said.

This has, however, failed to cheer the oil sector, which had been hoping for wider changes in tax rates to compensate them for higher crude prices in the absence of any substantial hike in sale prices.

The move would be budget neutral and was aimed at streamlining duty payment procedures, commented B Mukherjee, director of finance at Hindustan Petroleum Corporation.

Chidambaram said the new duty structure would bring total excise duty on petrol to Rs14.35 per litre and on unbranded diesel to Rs4.65 per litre. This, he said, would not impact pump prices.

The government raised fuel prices by about four per cent - (by Rs2) for petrol and (Re1) for diesel - earlier in February.

Shares in oil firms, however, dropped as the budget failed to meet industry demands, which had expected a reduction in state levies and more investment incentives.