New Delhi: The petroleum ministry favours a gradual easing of controls on fuel prices, starting with a quick rise in petrol rates to cut subsidies without risking higher inflation, three sources in the ministry said.
It wants diesel rates to be gradually increased to market levels and has recommended a small increase in the price of kerosene, used for lighting by the poor, and in cooking gas.
India’s fuel pricing system is scheduled to be reviewed at 4:30 p.m. by a panel of ministers led by finance minister Pranab Mukherjee.
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Oil industry officials say a move to market prices may increase petrol rates by 7% and diesel by about 9%.
Higher rates for diesel is likely to have an inflationary impact as the fuel is widely used for transportation, officials said.
India’s wholesale price inflation, an annual 9.6% in April, has remained over 8% for five months as food prices soared after last year’s drought.
The government has faced widespread protests against high prices and Prime Minister Manmohan Singh said last week that inflation was a problem that required firm action.
Oil ministry officials said they wanted a cautious approach towards diesel prices.
“In one stroke we cannot raise diesel prices fully to market levels.
Initially, the full burden of higher rates may not be passed on to the consumers,” a senior official in the oil ministry, who did not want to be identified, told Reuters.
Another source said the rates of politically sensitive kerosene and cooking gas may also be raised but state control over prices of these fuels was likely to continue.