The petrol price increase last week can only be the beginning, since the harder task of dealing with the pricing of diesel, kerosene and liquefied petroleum gas lies ahead. Underrecoveries, losses on each unit of fuel sold, are hitting oil marketing companies hard. As Table 1 shows, underrecoveries on diesel, kerosene, liquefied petroleum gas and petrol together have been, for a long period, a large proportion of the net sales of oil marketing companies. The absolute values, too, as Table 2 shows, have soared, especially over UPA-II’s tenure. Prices have clearly not adjusted to the great increase in oil prices internationally over the past decade, shown in Table 3. Meanwhile petroleum subsidies have exploded since 2008-09 and now are a startlingly high proportion of the government’s total subsidy bill, as visible in Table 4. (Click here for tables)
Consider, for example, the subsidies on kerosene in the public distribution system, as shown in Table 5. They have systematically grown since 2009-10, although the Budget’s share of the subsidies seems to have stayed constant per litre. A similar conclusion can be drawn from Table 6, which outlines the growth in subsidies of domestic LPG cylinders. Of course, the oil marketing companies’ under-recoveries are eventually borne by the government as well, together with upstream companies like ONGC and GAIL.
Diesel is perhaps the most problematic of the petroleum products in terms of its pricing. As Table 1 shows, it provides the largest component of under-recoveries. Also, as Table 7 shows, increases in petrol prices have not been matched by increases in diesel prices, creating significant distortions in the market. The proportion by which diesel is cheaper than petrol has steadily grown, as Table 8 shows. At 42 per cent today, it means that pricing is severely lopsided, and unsustainable.