Govt may delay fuel price hike decision

The government may defer raising the price of fuels to early next week, after the two-day national executive meeting of the Bharatiya Janata Party (BJP), which begins on Sunday.

Such a move would provide "ammunition" to the main Opposition party on a platter, according to an informed source.

The delay could also be due to a lack of consensus within the government on the issue of hike and the other components of the relief package for the cash-strapped oil companies who are bearing the brunt of the fuel subsidy.

"No decision has been finalised yet," said a senior central minister.

However, the hike is likely to be "moderate" to minimise the burden on the common man as well as to limit inflationary tendencies.

Moderate hikes are of little help to the oil marketing companies whose under-recoveries "" the gap between the actual subsidised selling price and the desired selling price "" have bloated due to high crude oil prices.

The price of the Indian basket of crude has jumped from an average of $80 per barrel in 2007-08 to an average of over $110 per barrel in the current fiscal. The basket reached an all-time high of $129.08 per barrel last week.

The three government owned marketing companies "" Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) "" are projecting an under-recovery of Rs 2,35,000 crore in 2008-09, three times more than what it was last year.

To bring down the under-recovery to zero, the price of petrol needs to be higher by Rs 16.34 per litre, diesel by Rs 23.49 per litre, kerosene by Rs 28.72 and LPG by Rs 306 per cylinder.

When the prices were hiked this February "" petrol by Rs 2 per litre and diesel by Re 1 a litre "" the gain to the oil companies was wiped out in four days, according to a senior official of one of the oil companies.

Price hikes are likely to be accompanied by cuts in duties which are a large chunk of the retail price.
 

TAXING TAXES ON AUTO FUELS
	Petrol*	Diesel*
Base price (withouttaxes)	20.93	20.96
Excise	15.02	4.76
Sales Tax	7.74	3.81
Customs	1.83	2.23
TOTAL	45.52	31.76
*Price in Rupees in Delhi Source: Petroleum Planning and Analysis Cell

IOC, the country's largest fuel retailer, contributed Rs 62,668 crore to the exchequer in 2007-08, of which a little more than half went to the Centre's kitty and the rest to the states.

Understandably, Finance Minister P Chidambaram wants to limit the duty cuts so that his revenue targets are not strained.