Govt slashes petrol and diesel prices

Govt slashes petrol and diesel prices

New Delhi: Giving politics precedence over economics, the Congress party-led United Progressive Alliance (UPA) government reduced the prices of petrol and diesel by Rs5 per litre and Rs2 per litre, respectively, effective from Saturday.

Analysts say the UPA’s move could be driven by the desire to regain the goodwill it lost after last week’s terrorist attacks in Mumbai, and, help it create a more populist image for itself ahead of Lok Sabha elections.

Significantly, the decision was taken after a meeting of the cabinet committee on political affairs, chaired by Prime Minister Manmohan Singh.

Union petroleum minister Murli Deora had signalled the government’s intent to cut prices last month, but the UPA’s hand was stayed by the so-called “model code of conduct" put in place by the Election Commission (EC) that prevents governments from making key announcements before the polls. Elections were held in Rajasthan, Delhi, Chhattisgarh, Mizoram and Madhya Pradesh in November and early December, and results are to be announced on Monday. EC has clarified that the decision does not violate the code of conduct even though the multi-stage elections in Jammu and Kashmir are yet to end.

“We have to strike a balance and cannot stop all decisions for one month. In fact, even earlier (when EC had asked Deora for an explanation about his promise to reduce prices), the Bharatiya Janata Party told us they would not have objected had the government got it cleared by us since they have also been demanding it (a price cut)," said S.Y. Quiraishi, election commissioner.

Announcing the price cut, the first since February 2007, Deora said that it was an “interim measure", signalling the possibility of further reductions. The government’s decision comes after international crude prices dropped from record highs of nearly $147 (Rs7,306 today) per barrel to less than $50.

Global crude prices were around $43.40 a barrel on Friday and that imported by India at $41.53. One economist said the government could have waited for some more time and allowed oil marketing companies to make some profit before effecting a cut in prices.

“Now the government may have to issue oil bonds to such companies to meet their under-recoveries," said M. Govinda Rao, director, National Institute of Public Finance and Policy. India’s public sector oil marketing companies sell at a government-decided price and absorb the difference between this and the international price of petroleum products. In turn, the government compensates them. Even at the rate of $41.53 a barrel, oil marketing firms such as Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd are expected to end 2008-09 with losses of Rs1.09 trillion.

Ruhi Tewari, Asit Ranjan Mishra and Liz Mathew contributed to this story.