Congress unwilling to bite bullet on fuel price

Only petrol rise case okayed, though govt clear that diesel, LPG & kerosene subsidy bill too high Sonia, PM & other brass confer without deciding

A decision on raising of fuel prices would be taken only after the meeting of the full Planning Commission on Saturday, senior government sources said, as the ruling United Progressive Alliance (UPA) continued to agonise over what quantity of increase would be politically palatable.

A meeting of the cabinet’s Political Affairs Committee had been scheduled today, at least two ministers confirmed. No papers were circulated in advance; of late, the government had stopped this practice, with papers given to ministers to read on the spot, to prevent news from leaking, a bureaucrat said. Till lunchtime, the government was still discussing the quantity and timing of an increase, but around then, the meeting was called off.

It has since been rescheduled for Thursday. However, the agenda is unknown.

In an important development today, the Congress party core group discussed the issue; petroleum minister S Jaipal Reddy was an invitee. According to sources, a decision on a rise in prices of diesel, cooking gas and kerosene was put off due to strong reservations within the party. In petrol, however, a rise is imminent, it being a decontrolled commodity. Even so, the government hasn’t been allowing oil companies to raise it for a long while.

Reddy stressed the case for a rise in petrol, gas, diesel and kerosene, but such a step was politically not considered expedient. Reddy was supported by Finance Minister P Chidambaram. Last week, the latter had made it clear that his ministry could not handle the burgeoning subsidy bill.

The core group was attended by Prime Minister Manmohan Singh and Congress president Sonia Gandhi. It went on for over half an hour.

Earlier in the day, Reddy met Chidambaram; emerging from it, he said a price rise was inevitable but its timing would be announced later.

As there is no change in the position of the two nay-sayer allies of the government, the Dravida Munnetra Kazhagam and the Trinamool Congress. This is only a marginal factor. However, according to TMC sources, the matter is still before the core committee on the Congress (which comprises the party and government) so there is no internal clarity on the quantum of the price hike.

"We had circulated a note to all members of the CCPA about the problem of increasing under-recoveries (revenue loss on fuel sales)... the under-recoveries will exceed Rs 1.88 lakh crore (this financial year)," Reddy told reporters after his meeting with Chidambaram. "And, prices (are) going up further at the global level; the rupee is not softening."

On his meeting with the finance minister, Reddy said "We discussed the figures relating to under-recoveries...I can't take a decision (on raising prices) only on the basis of economic facts. We are operating in a political economy. We will have to take a balanced view."

The government seems undecided on whether to allow an increase petrol prices by anything less than Rs 4 a litre; and whether to keep a proposed per-family monthly quota of LPG capped at four or six cylinders. There is also no clarity on how much price increase in diesel will be bearable politically and, at the same time, enough to offset the fiscal deficit problem. There were also fears about drought and the effect a diesel price rise could have on the farmers of Punjab and Haryana, who are using pumpsets to irrigate fields.

“There is no doubt the finances of the government are under pressure. So much so that we don’t even have a size of the full Plan, with days to go for a Planning Commission meeting. There is a meeting of the cabinet on Friday. This will be followed by a full Planning Commission meeting. We should expect some discussion on a fuel price hike there as well,” a top bureaucrat said.