New Delhi: The cabinet will shortly consider a proposal to overturn decades of price controls on petrol and diesel, oil minister Murli Deora said on Wednesday. The controversial recommendation has been made by a panel led by former Planning Commission member Kirit Parikh.
The committee also suggested raising the retail prices of kerosene and liquefied petroleum gas (LPG), which are dictated by the government as well to shield consumers from global market fluctuations.
If the findings of the report are implemented, diesel, petrol, cooking gas and kerosene prices will rise by as much as Rs2.33 per litre, Rs4.72 per litre, Rs6 per litre and Rs100 per cylinder, respectively.
“We will take it to the cabinet and the cabinet will take a decision. The Prime Minister is very serious about it,” said Deora.
Any move to raise fuel prices could backfire on Prime Minister Manmohan Singh, giving political parties added ammunition to attack his government, given the steep rise in inflation, especially that related to prices of food items such as sugar. More expensive fuel will add to commodity prices.
“Any hike in petroleum prices will impact the consumer price index more than the Wholesale Price Index as the weights are higher in the earlier case. The second round of impact on WPI will come through increase in transport margin which will show up with a time lag,” said Pronab Sen, chief statistician of India.
Deora anticipated some of the furore that’s likely to be kicked up if fuel prices are raised, especially with the economy only just emerging from a slowdown.
“Ours is a dynamic party. There are some people who will support it and some people who will not support it,” Deora said. “I hope these recommendations are included in the Budget. We will submit it to the cabinet in seven days.”
The Budget session of Parliament is to start on 22 February, with the Union Budget expected to be presented on 26 February. “The PMO (Prime Minister’s Office) directive is to process it (the report) immediately,” said S. Sundareshan, petroleum secretary.
State-owned oil refineries have for long bemoaned the controls that erode their earnings, though they are compensated in part through oil bonds given to them by the government. Removal of price controls would help private sector oil marketing companies that so far haven’t been able to match the subsidised prices at which state-owned refiners sell fuel.
Indian Oil Corp., Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, who operate almost 95% of the retail outlets across the country, are expected to end the current fiscal year with total under recoveries of around Rs45,500 crore. Of this, the three are expected to lose Rs17,422 crore on kerosene and Rs14,152 crore on LPG.
The report can’t be implemented given the current price rise, said opposition Bharatiya Janata Party national spokesperson Ravi Shankar Prasad.
“It could have cascading effect,” he said. “With Parliament to be convened shortly, any haste could be viewed as contempt of set norms.”
Congress party spokesperson Jayanti Natarajan said: “We are confident and sure that the cabinet would keep in mind the plight of the aam aadmi while taking any decision on the recommendations.”
The panel recommends that kerosene prices be revised every year in relation to the per capita agricultural gross domestic product at nominal prices and that the LPG subsidy should be paid out directly from the Budget.
Parikh said under recoveries—the deficit between the cost of sourcing and selling fuel—are not sustainable.
Energy shift: The Kirit Parikh panel wants kerosene prices revised every year in relation to the per capita agricultural GDP. Rajkumar / Mint
“If you do not do this then the economy will have to bear the burden,” Parikh said. “The question is: what is the best way? We have looked at the question of a viable and sustainable policy.”
While the committee has recommended the continuation of subsidy on kerosene in those rural areas where there is no electricity, it has also suggested rationalizing of PDS (public distribution system) kerosene based on the electrification data for below poverty line households under the Rajiv Gandhi Grameen Vidyutikaran Yojana.
In a related development, the committee has also recommended sharing of production revenue from the nomination blocks given to state-owned Oil and Natural Gas Corp. Ltd and Oil India Ltd with the petroleum ministry to help meet the subsidy burden.
While the finance ministry has given Rs12,000 crore to the state-owned refiners, an additional Rs19,574 crore is required for the entire year.
“The residual subsidy should be covered in the Budget,” Parikh said.
Asit Ranjan Mishra, Liz Mathew, Santosh K. Joy, Ruhi Tewari and Sanjiv Shankaran contributed to this story.