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Govt postpones decision on raising fuel prices

Govt postpones decision on raising fuel prices
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First Published: Mon, Jun 07 2010. 05 53 PM IST
Updated: Mon, Jun 07 2010. 05 53 PM IST
New Delhi: The government on Monday postponed a decision on the politically sensitive issue of raising fuel prices after some of its key allies appeared opposed to it for fear of stoking inflation and voter backlash.
The delay underscores the difficulties for the government coalition in pushing through financial reforms that entail painful adjustments to freer market but needed to improve government finances and free up cash for other programmes.
A government statement said a panel of ministers that was to have taken a decision on Monday discussed the inflationary impact of raising fuel prices.
“The (panel) came to the conclusion that further discussion would be necessary before views are firmed up,” it said.
The move was being keenly watched as an indicator of the Congress party-led coalition’s appetite for financial reforms. It backed out a few months ago on freeing up farm prices after street protests.
“There is pressure from allies, that seems to be the main reason. The finance minister himself had said some increase in petroleum product prices is necessary. If he is hesitant there must be pressure,” D H Pai Panandikar of think tank RPG Foundation said.
Union petroleum minister Murli Deora made a strong pitch for raising fuel prices ahead of Monday’s meeting, saying it was needed to cut losses of state-run oil companies.
The ministry 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.
Indian Oil Corp chairman B M Bansal said the state-run firm was suffering a revenue loss of Rs100 crore ($21.2 million) a day on account of low state-set prices.
Political Concerns
Raising fuel prices would stoke inflationary pressures, already at levels uncomfortable enough for voters to slam Congress in municipal elections last week in the eastern state of West Bengal.
Oil industry officials say a move to market prices may increase petrol rates by 7% and diesel by about 9%.
The panel of ministers include two members from largest coalition allies Trinamool Congress and Dravida Munnetra Kazhagam (DMK), who face crucial state elections next year and would try to prevent or soften any unpopular hike.
Both had opposed an increase in motor fuel prices in February.
Oil ministry officials said they wanted a cautious approach towards diesel prices as it raises transportation costs and has a wider impact on inflation.
“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.
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First Published: Mon, Jun 07 2010. 05 53 PM IST