New Delhi: Government may decide to raise diesel and cooking gas prices at a ministerial meeting, which is expected by end-December, a move that could stoke inflation but would help cushion oil retailers from rising global crude prices.
Indian oil firms last week raised petroleum prices - already deregulated - by about 5.6% as crude oil hovers near two-year highs, and the government is widely expected to allow diesel and cooking gas prices to increase.
“We certainly see a need for LPG (liquefied petroleum gas) price revision because the recommendation (of a government-appointed panel) was to raise prices by Rs100 and the prices were increased by only Rs35,” said oil secretary S. Sundareshan.
Oil marketing companies’ revenue loss on fuel sales in the current fiscal year is estimated at Rs660 billion ($14.6 billion), Sundareshan said on Tuesday.
The increase in diesel and LPG prices would help the oil firms protect their margins as international crude oil prices are close to $90 a barrel.
Sundareshan also confirmed the meeting of the ministerial panel - which can make decisions without referral to cabinet - had been deferred from an earlier scheduled date of 22 December.
He said there was a need to raise cooking gas and diesel prices as oil companies are currently suffering a revenue loss of Rs275 on sale of a 14.2 kg cooking gas cylinder and Rs6.50 on a litre of diesel.
Analysts say while the government is keen to ease its oil subsidy burden, lifting diesel and LPG prices after a hike in petrol prices would raise headline inflation which eased to 7.48% in November, its lowest in a year.
Raising diesel prices is a political hot potato in India as it accounts for a third of the country’s fuel demand.
Deregulation of petrol prices in June sparked off political protests against the Congress-led coalition government.
Diesel and gasoline have a weighting of 4.67% and 1.09%, respectively, in the wholesale price index (WPI), India’s main inflation measure, and raising fuel prices has a knock-on effect as farmers and manufacturers pass costs along.
LPG carries a weighting of 0.91%.
The increase in petrol prices and a Rs2 rise in diesel would lift WPI inflation by 6 and 24 basis points, respectively, with a cascading effect of the same degree over three or four months, Morgan Stanley economist Chetan Ahya wrote last week.