An increase in the prices of petrol and diesel appears imminent as top Congress leaders prepare on Wednesday to ponder the kirit Parikh panel report that has recommended radical overhaul of the fuel pricing system in the country.
The Congress core committee, which includes Prime Minister Manmohan Singh and party president Sonia Gandhi, is readying to discuss the recommendations of the panel as well as the immediate steps that must be taken to reduce the burden of fuel subsidy on the government.
The oil ministry, which has put its seal of approval on the recommendations to reform the fuel pricing regime, wants petrol prices to be deregulated, which will increase retail prices of petrol by Rs 3 per litre and diesel by about Rs 2, government officials said. It has also suggested that the price of cooking gas should be raised by Rs 50 per cylinder and kerosene by Rs 3 a litre.
The meeting of the Congress core panel will be followed on Thursday by a Cabinet meeting to discuss the Parikh panel’s report. Congress party sources said there is pressure to agree to a modest increase in the prices of petrol and diesel.
The Parikh panel has suggested freeing up the prices of auto fuels, diesel and petrol, from administrative control and steep increases in the prices of cooking gas and kerosene. It wants the price of kerosene raised by two-thirds, or Rs 6 a litre, and cooking gas by Rs 100 per cylinder.
Similar measures have been suggested by previous expert panels, but no government so far has had the political will to fundamentally reform the way fuel is priced in India.
The decision is not going to be easy for the Congress as even within the ruling alliance, there is a rush towards the populist corner. The Trinamool Congress and DMK have said a decision to hike prices will stoke inflation and aggravate troubles for the aam aadmi, already reeling under pressure from high prices of essential commodities.
The Cabinet may modify the oil ministry’s recommendation to deregulate auto fuels, a minister in the UPA government said. “There is one view (in the political leadership) that the government should deregulate only petrol prices and continue to control diesel prices with some ad-hoc price increase, say Re 1 a litre,” he said.
But many in the government are of the view that the status quo cannot continue: the rising subsidy bill will make money scarce for social sector programmes and other development initiatives, said a senior minister.
Sources said the party will not support any move that will involve hiking the prices of kerosene and LPG. At the recent conclave of chief ministers on price rise, the Congress heads of government had supported the stand of their NDA counterparts that there should be no increase in the prices of kersone and cooking gas. Government officials say this is the best time to deregulate auto fuel prices.
“This is the right moment. Oil prices of the Indian basket (average import price of crude oil) have softened to $69 a barrel. Decontrol will push up fuel prices only marginally, between Rs 2-3 a litre. Besides, there is no major political hurdle... the next election (Bihar assembly polls) is about eight months away,” the official observed.
Deregulation of petrol and diesel is also imminent due to the finance ministry’s refusal to meet the entire subsidy burden of about Rs 29,000 crore on the sale of cooking gas and kerosene for 2009-10, said an oil ministry official.
The finance ministry has provided only Rs 12,000 crore to state-owned oil marketing companies as compensation for revenue losses in the current fiscal. “The oil ministry will continue to demand adequate compensation for 2009-10,” he added.
Private sector oil companies, Reliance Industries (RIL), Essar Oil and Shell India, could benefit the most if the recommendations are implemented in full.
They have been unable to expand their retail operations because only state-run oil firms get compensated for under-recoveries.
The other beneficiaries of decontrol will be the state-run upstream companies and the exchequer. In 2008-09, the upstream companies paid over Rs 31,000 crore to refiners IOC, BPCL and HPCL while the government had to foot a subsidy bill of over Rs 72,000 crore.
Source: Economic times
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