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Govt hopes to raise fuel prices soon

Govt hopes to raise fuel prices soon
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First Published: Sat, May 24 2008. 12 03 AM IST
Updated: Sat, May 24 2008. 12 03 AM IST
New Delhi: Saying that a hike in fuel prices is inevitable to salvage oil marketing companies hit by high crude oil prices, the Indian government on Friday mulled plans to increase diesel and petrol prices later this month.
If those in favour of fiscal discipline can overcome political populists within the ruling party, diesel and petrol are expected to be dearer by Rs2 and Rs4 a litre, respectively.
The Union petroleum and natural gas ministry favours a combination of auto fuel price hike and a cut in customs and excise duties. It wants to abolish customs duty on crude (from 5%), slash import duty on petrol and diesel to 2.5% (from 7.5%) and lower excise duty on both products.
/Content/Videos/2008-05-24/2305 Utpal on oil.flv
“It (price rise) is inevitable. The situation is alarming and we want to stem the rot at the beginning,” said M.S. Srinivasan, secretary, union ministry of petroleum and natural gas.
Crude oil prices have more than doubled from a year ago and hit a record $135.09 (Rs5,836) a barrel on Thursday.
Srinivasan’s comment triggered a rally in the stocks of Indian Oil Corp. Ltd or IOC, Hindustan Petroleum Corp. Ltd or HPCL and Bharat Petroleum Corp. Ltd, or BPCL, which rose more than 3%. The shares of IOC closed at Rs420.15, HPCL at Rs243.15 and BPCL at Rs359.40 on the Bombay Stock Exchange.
“I hope we do not see the days of rationing of essential commodity such as petroleum products. A decision needs to be taken immediately,” said Murli Deora, Union minister for petroleum and natural gas, who had to cut short his visit to the UK to salvage the situation.
C. Rangarajan, chairman of the Prime Minister’s economic advisory council, said he backed an upward adjustment in retail prices noting that there is a limit to the oil bonds that can be issued to soften the losses of oil marketing public sector entities.
However, any price hike will require the approval of Sonia Gandhi, chairperson of the ruling United Progressive Alliance, or UPA, who has often cited the common man as the excuse for not passing on what are essentially global increases in crude prices. India forces oil marketing companies to sell petrol and diesel at prices that are significantly lower than global retail prices.
A meeting called by the principal secretary to the Prime Minister, attended by theheads of oil marketing firms and the secretaries of finance and petroleum, to resolve the issue ended inconclusively.
The ruling UPA is already under pressure for India’s recently soaring inflation, which is widely expected to worsen before it gets better. A price hike on petrol and diesel would also be politically difficult for the ruling party which has lost several elections and also faces key state elections later this year in the run-up to national elections.
But, “even as the UPA government did not raise prices for all this while, it lost most of the state elections,” notes a Union cabinet minister who is in favour of a price hike but didn’t want to be named. As for a price hike incurring the wrath of the Left parties, which keep the UPA as the majority coalition, this minister said: “Even when the prices were raised last time, the Left had threatened mass protests but, nothing happened.”
Basudeb Acharia, leader of the Communist Party of India (Marxist) in the Lok Sabha, said the Left parties would oppose any proposal to hike the prices. “The government should transfer the Rs40,000 crore that it earned extra in revenues over the past year due to high crude prices, to public sector fuel retailing companies,” he said. “So, it is not that the government cannot do without a price hike.”
The opposition Bharatiya Janata Party wants the government to do away with import duty first rather than hike prices, spokesman Prakash Javadekar. A Congress spokesman said any hike should not be onerous on the common man, leaving some wiggle room.
Ashish Sharma contributed to this story.
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First Published: Sat, May 24 2008. 12 03 AM IST
More Topics: Video story | Oil | Oil price hike | UPA | Crude |