M A I N   N E W S

A big hole in your pocket
n Govt decontrols petrol prices n Petrol up by Rs 3.5 a litre, diesel Rs 2 a litre n LPG to cost Rs 35 more n Kerosene dearer by Rs 3 a litre
Girja Shankar Kaura
Tribune News Service

New Delhi, June 25
Evoking sharp reactions from both the common man and the Opposition, the Congress-led UPA Government today decided to decontrol the petrol prices, leading to an increase in rates of petrol by Rs 3.50 a litre. Diesel prices have also gone up by Rs 2 a litre.

High global oil prices and pressure to trim the budget deficit outweighed concerns about the political impact of the measures as the government went ahead to announce the steep hike.

Households will also have to pay an additional Rs 35 per LPG cylinder and poor man’s cooking medium kerosene will be dearer by Rs three a litre.

Secretary S Sundareshan announced the revision in prices after the meeting of the Empowered Group of Ministers (EGoM).

Freeing fuel

From now, the price of petrol will be market determined both at the refinery gate and at the retail level, as suggested by the Kirit Parikh Committee. The consumers will share the burden of rising prices of crude in the international market. High global oil prices, pressure to trim the budget deficit and crisis staring at oil PSUs forced the government to take the decision.

What would it do?

Decontrol would result in reduction in revenue loss of oil PSUs by Rs 55,000 crore. A lower fuel subsidy bill may help reduce the fiscal deficit substantially. It was an estimated 6.9% last year.

The Flip side

n Monthly inflation, currently at 10.16%, could go up by 0.9% point.

n Political backlash, nationwide protests

Even diesel prices will be eventually freed of all administrative controls, he said.

“It was decided that the price of petrol will be market determined both at the refinery gate and at the retail level,” he said.

India’s benchmark bond yield rose two basis points immediately after the news on concerns that the hikes would push up inflation.

The benchmark five-year swap rate rose one basis point to 6.74 per cent while the one-year swap rate rose two basis points to 5.50 per cent. Shares in Indian oil firms rose more than three per cent after the government announcement. Sundareshan said the government would, however, continue to “heavily subsidise” the cooking fuels.

“We are fully aware of the sentiments of the people. We are fully aware of some difficulty that it may cause. But, in the larger interest of the Indian economy, it is absolutely essential that the consumers also share the burden of rising prices of crude in the international market,” he said.

The EGoM took the decision based on the recommendations of the Kirit Parikh Committee, which had suggested decontrol of fuel prices.

“This price which is likely to be very reasonable, being market-determined, can be easily accommodated by users of petrol in the country,”added Sunderashan.

He said the impact of the hike on a petrol-driven four-wheeler would be only an additional Rs 190 per month, while a two-wheeler user may have to spend out an extra Rs 30-35 per month.

“If the EGOM had not done this, the under-recoveries for diesel alone would have been Rs 23,000 crore, which is a burden which the government and upstream oil companies cannot bear,” he said.

Kerosene, which is distributed by the government on subsidised rates to below poverty level families, saw the largest hike of 33 per cent.

“It has to be borne that the price of kerosene has not increased since 2002,” said the petroleum secretary. In Delhi, the current price of kerosene before the hike is Rs 9.09 per litre.

Oil Minister Murli Deora had, on more than one occasion, briefed the Prime Minister Manmohan Singh and Mukherjee on the crisis that would befall oil PSUs if no decision was taken on hiking prices. In early June, the government held off the decision after two powerful ministers from coalition parties stayed away from a ministerial panel meeting, signalling opposition to the move on fears of voters’ backlash.

The decision would cause more inflation, already in double digits, to shoot up further. India’s food inflation accelerated in mid-June and further inflationary pressures could lead the central bank to raise interest rates ahead of a July 27 policy review.

In May, WPI-based inflation provisionally entered double digits at 10.16 per cent.

Finance Minister Pranab Mukherjee said earlier this week he believed a strong harvest following a normal monsoon would tame food prices.

Incidentally, state oil firms currently lose about Rs 215 crore per day on selling fuel below the imported cost. At present, petrol is being sold at Rs 3.73 a litre below its cost, diesel at a loss of Rs 3.80 per litre, kerosene at Rs 18.82 a litre and domestic LPG at a discount of Rs 261.90 on every 14.2-kg cylinder.

Officials have been saying that fiscal deficit could shrink to 4.5 per cent of GDP in fiscal year 2011 if fuel prices are deregulated and on the back of other revenues, including the 3G spectrum auction.

Fuel accounts for a quarter of its estimated subsidy bill of 1.2 trillion rupees.





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