Hike in petrol, diesel prices much needed reforms: PM

Prime Minister Manmohan Singh today rejected the Opposition's criticism of the government's decision to hike fuel prices, saying the move to free petrol and diesel rates was "much-needed" reforms and that there should be no "excessive populism".

"The fact that petrol prices have been set free, the same is going to be done to the diesel prices, was much-needed reforms," he told journalists accompanying him on his way back home from Toronto where he attended the G-20 Summit.

The government on June 25 decontrolled petrol prices, resulting in a Rs 3.50 a litre increase in rates in Delhi, and raised diesel prices by Rs 2 a litre in preparation for an eventual decontrol.

Besides, domestic LPG prices were hiked by Rs 35 per cylinder and kerosene rates went up by Rs 3 per litre, the first increase in the poor man's cooking fuel in more than 8 years to cut government subsidies.

"And the adjustment that has been made in the prices of kerosene and LPG was also necessary, considering the very high amount of subsidy that is implicit in their pricing structure," he said.

Freeing diesel prices from government control would result in rates going up by another Rs 1.50 per litre but no timeframe has been set for doing so.

The Prime Minister was replying to a question on the government's decision Friday to effect an increase in the prices of petroleum products to cut losses for oil marketing companies and whether it indicated that the government was getting ready for tougher reforms and further deregulations.

"Well I can't tell you what we are going to do next. I think that when things get crystallised in the government system you will know them," he said.

The Prime Minister said the government had taken due care to ensure that the poorer sections were affected to the least possible extent and that was why the attempt to keep under regulation the prices of kerosene and LPG.

Even after the hike, kerosene is being sold at Rs 15.07 per litre below cost while a 14.2-kg LPG cylinder is under priced by Rs 226.90.

The hike in fuel prices was necessitated because of the rising gulf between the cost of production and the retail prices.

Without the increase, public sector oil firms were projected to lose Rs 74,300 crore in revenues in 2010-11 fiscal and after the hikes, they will be saddled with Rs 53,000 crore of losses.

Also, the government has reserved the option of intervention in case of excessive rise or volatility in global oil prices, which are to decide auto fuel prices now.