New Delhi: Petroleum minister M. Veerappa Moily said Friday that diesel prices will be increased by 40-50 paise per litre every month, in the wake of the government removing it from the purview of the administered price mechanism.
“Until further orders, oil marketing companies (OMCs) can increase it by 40-50 paise every month,” Moily told reporters in New Delhi.
The rationale is to continue with a staggered diesel price increase till the losses borne by government-owned OMCs such as Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) are wiped out. These OMCs currently lose Rs 9.22 per litre on account of having to sell diesel below the cost of production.
In Delhi, diesel costs Rs47.65 a litre.
While the announcement comes in the backdrop of the United Progressive Alliance government’s willingness to address fiscal correction and send the right signal to rating agencies, the move won’t be popular and could provide a fresh inflationary impetus.
According to the petroleum ministry, the OMCs lost Rs1.24 trillion (until December 2012) on account of selling diesel, kerosene and cooking gas at government-fixed prices. They lost Rs73,815 crore on account of diesel. The OMCs lost Rs1.38 trillion in the last fiscal from selling fuels below cost.
Meanwhile, the government may crack down on bulk consumers of diesel, which need to pay market prices, buying it from retail pumps directly to save on costs.
Moily referred to the public transport fleets of states such as Gujarat and Tamil Nadu refuelling at retail outlets instead of bulk sourcing from the OMCs to save money. Around 15% of India’s diesel is consumed by passenger vehicles.
“We need to look into that. I have also heard about it. We are seized of that matter,” he said.
PTI contributed to this story