Petrol, LPG may cost more

Consumers will almost certainly have to pay more for fuel from next week as all pieces fell into place on Tuesday for raising prices of cooking gas and liquid petro-fuels.

The committee on petrol pricing, headed by former Planning Commission member Kirit Parikh, made out a strong case for removing subsidies on petrol and diesel and reducing them for cooking gas and kerosene.

The recommendations include imposition of an additional excise duty of Rs80,000 per diesel car to recover higher subsidy provided to the fuel.

According to top sources in the oil ministry, it is likely to endorse the committee’s views. If implemented in full, it will result in an immediate jump of around Rs5 per litre of petrol, Rs3.50 per litre of diesel and Rs100 per LPG cylinder. However, very few believe the government will implement all recommendations at one go, as there will be a political price to pay for it.

Even in the case of petrol — the least politically-sensitive petro-fuel — freeing pricing means the commodity will have to be sold at Rs85 per litre if crude prices rise to $140-150 a barrel. That was the level in 2008.

The ministry is likely to put up the report, along with its recommendations, before the cabinet this week. “We will try our best [to get it implemented],” a senior functionary said.

“This is the best time to put price decontrol into practice,” he added, pointing to the presence of three auspicious signs — a lull in crude oil prices, the recommendations of an expert committee and the absence of big elections around the corner.

The ministry, headed by Murli Deora, has been campaigning actively during the last several days and has already made hour-long presentations to prime minister Manmohan Singh and finance minister Pranab Mukherjee.

“The prime minister seemed to appreciate our points made during the presentation and remarked that things cannot go on like this,” a senior official of a government-owned oil company said.

“Whether that means he will completely remove petrol and diesel subsidies, I don’t know,” he added, reflecting the uncertainty over political decision-making. The final call, according to government sources, will be taken by the prime minister in consultations with
UPA chairperson Sonia Gandhi.

Parikh’s is the third committee that has submitted such a report in the last five years, but may be luckier as relatively low crude prices make the suggestions easier to implement. Parikh, after presenting the report to Deora, dismissed fears of free pricing igniting the already high rate of price rise.

“You don’t want to raise fuel prices for fear of causing inflation and you provide subsidies through deficit financing. But printing more notes (through deficit financing) is as much a cause of inflation as raising prices directly,” he pointed out.

The latter method, he pointed out, is more unfair to the poor as most of the subsidies on motor fuels are appropriated by the well off. “Increasing the price directly will also lead to lower
consumption and higher efficiency,” he urged.

The committee was formed after the government had to pick up a tab of around Rs 1,03,000 crore - around a tenth of the Union budget - last year after state-owned oil companies were forced to keep prices lower than their international procurement prices.

Indian oil retailers import around 70% of their crude oil from outside and are expected to post another Rs 45,000 crore of under-recoveries this year due to artificially low prices.

Parikh said if his recommendations were implemented, including raising kerosene prices by Rs 6 per litre, the total under-recoveries can be brought down to just Rs 15,000 crore.

The steps will also help in reducing adulteration of diesel by kerosene and promote the use of railways, which use only a fourth of the diesel used by trucks to transport the same quantity of goods.