New Delhi, January 13
According to the Oil Ministry, the government may slash oil prices as early as Thursday when the Cabinet meets. It may also free fuel pricing for state-run oil companies. The proposal on cards, say government officials, includes cutting of petrol prices by around Rs 5 a litre, diesel by Rs 3 per litre and domestic gas cylinder by Rs 25.

Political watchers ask whether the government will bring down the petrol price to Rs 35 per litre and diesel to around Rs 25 per litre when the crude oil barrel has once again fallen to $40 level.

In 2004 when the UPA government came to power, it had brought in administrative controls on domestic oil prices stating that crude prices had started climbing up and consumers need to be protected.

At that time price of crude was $39-45 per barrel. Domestic price for petrol in Delhi was Rs 33-35 per litre, diesel around Rs 21-25 per litre and LPG cylinder was retailing between Rs 240-270 per cylinder.

At regards the profitability of domestic state-run oil companies, currently they are making a profit Rs 9.70 a litre on sale of petrol, Rs 3.70 a litre on diesel, but are losing Rs 31.70 per LPG cylinder and Rs 11.69 a litre on kerosene. Another proposal to be implemented is increase in excise duty on petrol and diesel by Re 1 that were slashed earlier in wake of high prices. Sources in the Finance Ministry say the government is in need of revenues as indirect tax incomes are falling due to slowdown and revenues from this sector is quite big to forego at this point in time.

There is also a proposal to compensate the oil companies with bonds of Rs 30,000 crore for losses arising out of LPG and kerosene. The Finance Ministry has been deferring the issue because liabilities of the balance sheet are already very high.