UPA bites bullet, hikes fuel prices

UPA bites bullet, hikes fuel prices
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First Published: Thu, Jul 02 2009. 12 37 AM IST

Costly hike? Murli Deora at the press conference on Wednesday. Kamal Singh / PTI
Costly hike? Murli Deora at the press conference on Wednesday. Kamal Singh / PTI
Updated: Thu, Jul 02 2009. 12 37 AM IST
New Delhi: The government decided to bite the bullet and raised fuel prices a day before Parliament is to convene for its month-long budget session, but sought to mitigate political damage by excluding kerosene and cooking gas.
The hike will offer some relief to public sector oil marketing companies, or OMCs, which have been forced to sell fuel to domestic consumers at a loss, and will almost certainly reverse the negative trend in wholesale price inflation.
Costly hike? Murli Deora at the press conference on Wednesday. Kamal Singh / PTI
The Congress-led United Progressive Alliance (UPA) has also managed to insulate the budget from any political attacks that could substantially dilute its policy impact, and at the same time reaffirm its reformist credentials.
Effective midnight Wednesday, the prices of petrol and diesel were raised by Rs4 and Rs2 per litre, respectively. The rates for consumers will vary depending on local taxes. In New Delhi, for instance, diesel and petrol will be priced at Rs32.87 per litre and Rs44.63 per litre, respectively.
Even while political criticism was swift, the government sought to play down the impact. “In case crude oil prices come down, the benefit will be passed on to the consumers,” said Murli Deora, the Union petroleum minister.
The decision comes when global crude oil prices were around $71.70 (around Rs3,449) per barrel on Wednesday evening.
Fuel prices were last raised on 4 June 2008, when petrol, diesel and cooking gas prices were raised by 11%, 9% and 17%, respectively. The government on 28 January slashed petrol and diesel prices by Rs5 and Rs2 per litre, respectively. This came after the rise and fall in global oil prices, albeit with a lag.
Even after the price rise, the total under-recovery to be borne by oil marketing companies such as Indian Oil Corp. Ltd (IOC), Bharat Petroleum Ltd and Hindustan Petroleum Corp. Ltd, will be around Rs56,000 crore for the current fiscal year, provided crude oil prices remain at current levels. Of the total amount of under-recoveries, Rs30,000 crore is on account of kerosene and LPG or liquefied petroleum gas sales. The under-recoveries for OMCs were Rs1.03 trillion in 2008-09.
“The under-recoveries of the oil marketing companies will be met by the government. The government will decide on the modalities to be worked out for the OMCs,” said R.S. Pandey, petroleum secretary.
“With this hike, our under-recoveries will be reduced by around Rs750 crore per month. For the industry, this hike will result in reducing the under-recoveries by around Rs13,000 crore for the year, provide the crude oil prices remain at the same level,” said S.V. Narasimhan, director, finance, at IOC, India’s largest OMC.
Political opposition was quick. “We strongly deplore the move of the government to hike petroleum prices on the eve of the budget session (of Parliament). The UPA government has done this without justifying the need and urgency of this so-called urgent decision when all the economic issues facing the country were slated to be discussed in detail. This is also disrespect of Parliament and the government will have to face the ire of the opposition in the (budget) session and will have to effect a roll-back,” said D. Raja, national secretary, the Communist Party of India.
Prakash Javadekar, spokesperson, Bharatiya Janata Party, said, “The petroleum price hike today is a manifestation of the perfect style of the Congress’ way of deception. It reduced the prices a few days before the polls and have now made it up today, bringing (the) burden to (the) common man already reeling under price rise and job losses. This seems to be the Congress’ gift to the voters of the country who voted them to power. This move is totally uncalled for and we will oppose it in Parliament and on (the) streets.” However, the Congress defended the move and termed it “in larger national and public interest”.
“It is purely a commercial decision considering the market conditions and is part of the executive powers of the government. Governments in the past have been announcing a price hike or reduction outside Parliament,” said Congress spokesperson and Lok Sabha MP Manish Tewari.
“The fuel price hike will not have much of an impact on inflation rate. It will have 0.33% direct impact which will be visible in two weeks while the second round impact through increase in transportation costs will have 0.24% impact on inflation. I consider it as a good move by the government as inflation is in the negative territory. The government has learnt its lesson from last year’s mistake when it did not hike the fuel prices when inflation was low and had to increase the prices when inflation was already high. Now, inflation rate will move into positive territory sooner than earlier expected,” said Dharmakirti Joshi, principal economist, Crisil Ltd.
Santosh K. Joy and Asit Ranjan Mishra contributed to this story.
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First Published: Thu, Jul 02 2009. 12 37 AM IST
More Topics: UPA | Fuel | Petrol | Diesel | Price |