Fuel prices zoom, petrol rates to change often

Brace for the bad news. And worse. Your fuel prices have gone up across the board — petrol, diesel, LPG and kerosene.

Your petrol prices will no longer be subsidised or decided by the government; they will be market-dependent and aligned to international rates and could go up on a fortnightly — or even weekly — basis, depending on individual oil companies. Diesel, kerosene and LPG will continue to be partially subsidised.

On Friday, the government risked a huge battering in the popularity stakes by deregulating petrol prices. The immediate impact will be an increase in fuel prices, and inflation. The move forms part of the UPA government’s efforts to save the oil marketing companies from racking up losses which then have to be funded by the government through budgetary subsidies.

The ‘tough’ decision was taken by an empowered group of ministers (EGoM) headed by finance minister Pranab Mukherjee on the day the prime minister left for Canada for G-20 deliberations. Petrol prices would be determined by oil companies; the immediate hike could be up to Rs3.50 a litre, effective Friday night.    

Although the government will continue to subsidise diesel, cooking gas (LPG) and kerosene, their prices too have been increased by Rs2 per litre, Rs35 per cylinder and Rs3 per litre respectively. The decision will help the government bring down its subsidy level and also bridge the budget deficit.

Signalling yet another reform measure, a second EGoM on Friday, again headed by Mukherjee, took the call of releasing five million tonnes of wheat in the open market to improve its availability and keep a check on prices. Last year, the government had released three million tones of wheat through state governments. The EGoM deferred taking a decision on cutting the levy on sugar millers from 20% to 16%, and removing import duty on sugar.

The government has provided Rs3,108 crore towards petroleum subsidy in the current year against an estimated fuel subsidy bill of nearly Rs90,000 crore for 2010-11, at an average crude oil import price of $80 a barrel.

The under recoveries for oil marketing companies would have been Rs72,000 crore at current prices if the prices of petroleum products were not increased, petroleum secretary S Sundaresan said. “Now, with petrol prices being market-linked and the increase in the prices of diesel, LPG and kerosene, the under-recoveries would be around Rs53,000 crore,” said Sundaresan.

Meanwhile, the government has given an assurance that if crude prices in the international market touch the 2008 level, it would be ready to intervene again to keep prices in check. “We need to understand that the government cannot keep providing subsidies on oil products. We have to spend on other social sector schemes also,” petroleum minister Murli Deora said at a hurriedly-called press conference after the EGoM.

Sundaresan said, “It was decided that the price of petrol will be market-determined, both at the refinery gate and at the retail level.” He added that diesel prices would be market-driven, but sometime in the future.