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New Delhi:
In a major decision to bring petroleum products in line with market
rates, the government today freed petrol from all pricing controls
and hiked diesel prices by Rs two a litre, Oil Secretary S
Sundareshan announced after the meeting of the Empowered Group of
Ministers.
Finance Minister Pranab Mukherjee said
price control had become unbearable for his Ministry to fund.
The government would retain the right to “suitably intervene” in
pricing of both fuels in case of “a high rise and volatility in
international oil prices”, said a Petroleum Ministry release.
The EGoM also approved a lower-than-recommended raise in cooking gas
LPG and kerosene used by low income and poor families respectively
with a sweetener to continue the PDS Kerosene and Domestic LPG
Subsidy Scheme and the Freight Subsidy (For Far-flung Areas) Scheme
by two years until March 2014.
As a result, the price of petrol will go up by Rs 3.50 per litre,
diesel by Rs 2, kerosene Rs 3 per litre and LPG Rs 35 per cylinder
from midnight Friday.
“In light of budgetary constraints and the growing imperative for
fiscal consolidation, and the need for allocating more funds to
social sector schemes for the common man, the government has decided
that pricing of petrol and diesel, both at refinery gate and at the
retail level, will be market-determined,” said a government
statement.
“However, in respect of diesel, the initial increase in retail price
will be Rs 2 per litre at Delhi.
Further increases will be made by the OMCs in consultation with the
Petroleum Ministry,” it said.
The attempt is to bring down the government’s subsidy bill on
kerosene and LPG, as also relieve the state-run oil marketing
companies from incurring losses for selling these and petrol and
diesel below their economic pricing.
Even after these steps, the government and the OMCs are expected to
bear an estimated under-recovery burden of about Rs 53,000 crore in
fiscal 2010-11, down from Rs 72,000 crore estimated at the start of
fiscal year in April.
The government’s fiscal deficit, now projected at 5.5 per cent of
the 2010-11 budget would shrink, freeing up capital for other social
sector schemes. But the hike, especially that of diesel, would
trigger all-round increase in distribution costs, further stoking
inflation that is currently in double digits.
While ally Trinamool Congress leader Mamata Banerjee stayed away
from the EGoM meeting, DMK leader Alagiri opposed the hike.
Petroleum Minister Murli Deora jostled for the increase, saying OMCs
would turn sick if no decision was taken.
The Ministry statement said that market rates for petrol and diesel
would allow private firms Reliance Industries and Essar Oil — who
shut their outlets in 2008 after government refused to pump up
retail prices — to reopen retail sales.
“Market determined pricing is expected to attract higher investments
in the fuel retail sector, and by spurring market competition,
encourage OMCs to reduce costs, improve efficiency and service
standards,” it said.
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