ADB questions logic behind petro price cut

The Asian Development Bank (ADB) today questioned the rationale behind the recent cut in petroleum prices by India, even as there may be another round of reduction in fuel rates shortly.

"In India, retail gasoline prices were reduced by about 10 per cent (Rs 5 a litre) and diesel prices by about 6 per cent (Rs 2 a litre) on December 5, even though under-recovery by the oil companies in 2008-09 is estimated at some $25 billion," ADB Executive Director Ashok Lahiri said at Petrotech here.

"The key policy question that should be asked is - given that consumers had already accepted the higher priced gasoline and diesel, would it have made sense to continue with those prices to encourage consumers to conserve fuel with some marginal, but desirable impact on the oil import bill, while giving the companies some relief?" Lahiri said.

Lahiri, who held the post of Chief Economic Advisor in India before his posting to ADB, later told reporters that does it make sense to decrease prices when global prices fall, when global price increase was not fully passed on to the consumers.

Meanwhile, India may cut prices of petrol, diesel and domestic LPG prices tomorrow for the second time after June 2008, when it had revised prices upwards.

The Cabinet, scheduled to meet on Thursday, may cut petrol price by Rs 5 a litre, diesel by Rs 2 per litre and domestic LPG by Rs 25 per cylinder, giving relief to the common man and further easing inflationary pressures, a Petroleum Ministry official had said yesterday.

Lahiri said the response in China to softening of global crude prices was very different.