BackGovt circulates cabinet note on increase in fuel prices
Govt circulates cabinet note on increase in fuel prices
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New Delhi: In its attempt to get its finances in order, the Congress-led United Progressive Alliance (UPA) plans to increase fuel prices after the monsoon session ends on Friday.
The ministry of petroleum and natural gas has drafted and circulated a cabinet note seeking an immediate increase in the prices of petrol, diesel, cooking gas and kerosene, and limiting the number of subsidized cooking gas cylinders supplied to households. The cabinet committee on political affairs is expected to consider the proposal at its meeting next week.
While there is no certainty that the cabinet committee will approve the increase—it will be a very unpopular move—if it does, it will be in keeping with the tenor of messages coming from North Block, where the finance ministry is based: that tough measures are called for to tame the fiscal deficit. Still, an attempt to increase fuel prices will give the opposition parties more ammunition to attack a government already besieged by criticism over irregularities in coal block allocations, this year’s version of 2010-11’s so-called 2G scam.
The UPA has been promising action to rein in subsidies for the last six months, but has held back due to resistance from within the ruling coalition and rising inflationary pressures. India’s fiscal deficit is projected at 5.1% of gross domestic product (GDP) in the current fiscal year, but slowing revenue collections and the inability of the government to curb the growing subsidy bill may cause the fiscal deficit to overshoot the target.
Last fiscal year, the government’s fiscal deficit touched 5.8% of GDP, substantially in excess of the government’s projections. After taking charge, finance minister P. Chidambaram constituted an expert panel under former finance secretary Vijay Kelkar to review the fiscal situation. The committee submitted its report earlier this week. And while its contents aren’t officially public, it would appear that the finance ministry is sticking to its position.
A top functionary in the petroleum and natural gas ministry, who spoke on condition of anonymity, said the finance ministry has refused to accede to the demand for a higher subsidy bill.
“We are in trouble," this person added.
According to news agency PTI, the petroleum ministry’s proposal to the cabinet committee also includes barring households with an income of more than 50,000 per month, or 6 lakh a year, from getting subsidized LPG (liquefied petroleum gas) cylinders.
India’s oil import bill increased from 4.09 trillion in 2009-10 to 7.26 trillion in 2011-12. Government-owned oil marketing companies such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd are compensated by the government for selling diesel, kerosene and cooking gas at government-fixed prices that are significantly lower than the cost of production.
The losses of these companies continue to rise because they can’t sell petrol at market prices despite the government’s claims that they are free to fix prices. Together, these companies lost 47,000 crore in the first quarter of this fiscal year from selling diesel, kerosene and domestic LPG cylinders below cost to keep inflationary pressures under check. Of this, 27,042 crore was on account of diesel sales alone. According to the petroleum ministry, in the remaining three quarters, the companies are likely to incur a loss of 1.55 trillion on account of this.
While a petroleum ministry spokesperson declined to comment on the cabinet note, a senior government functionary, who also didn’t want to be identified, said that the government was waiting for the ongoing monsoon session of Parliament to end on Friday before taking a decision.
Underlining the inevitability of increasing the fuel prices, a second government functionary said: “The truth is that we must and the truth is that we cannot. We will have to wait for three more days."
This person, too, did not want to be identified.
The government is also concerned by the growing diesel consumption in the country. According to a study conducted by the Petroleum Planning and Analysis Cell, which functions under the petroleum ministry, passenger vehicles such as cars and sport utility vehicles account for 15.88% of India’s annual diesel consumption. The consumption of diesel grew 16% in the first three months of the current fiscal to 18.3 million tonnes (mt) from 15.8 mt in the corresponding period last fiscal. India consumed 60 mt of diesel last fiscal.
liz.m@livemint.com
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