Oil firms allowed to fix diesel price subsidised LPG cap raised

Govt has permitted oil companies to increase diesel price by 45 paise a month

Bulk consumers will have to pay market price, to be revised every fortnight; Consumers would get nine subsidised cooking gas cylinders a year, instead of six at present

Unwilling to announce a hike in diesel price, the government on Thursday allowed oil marketing companies to increase the price in small doses periodically and bring it in line with global rates. To begin with, an immediate increase of 45 paise a litre was announced for sales through retail outlets, while bulk consumers, which add Rs 12,907 crore to the subsidy burden, would have to pay market price, to be revised every fortnight.

For bulk consumers buying from installations of OMCs, the immediate increase would be Rs 9.25 a litre. To cushion the political backlash, the government simultaneously announced a hike in the number of subsidised cylinders a consumer could avail of in a year to nine. This is expected to push the revenue loss of OMCs by Rs 5,200 crore till March 2013, but taking into account the volume and price it will be Rs 10,000 crore on an annualised basis. (Click here for graphics)
 

OTHER CABINET DECISIONS

• CDMA spectrum base price reduced by 50%
• 2.5% import duty on crude edible oil
• President’s Rule in Jharkhand suggested
• Continuation of JNNURM till March 2014

Price of non-subsidised LPG had been increased by Rs 46.50 a cylinder, while petrol price had been cut by 25 paise a litre exclusive of VAT, IndianOil said in a press release

Market pricing for bulk consumers would mean government entities, including the Railways and defence, would pay Rs 6,140 crore more for diesel. If the government entities are exempted later, they would wipe out almost half the gains accruing to OMCs on market pricing for bulk consumers.

After a meeting of the Cabinet Committee on Political Affairs, Petroleum Minister M Veerappa Moily said: “We have given some liberty to oil marketing firms to raise diesel price in small doses. They should exercise this discretion in a manner that inflation is not impacted.” A full decontrol of diesel price would have meant an immediate hike of Rs 9.60 a litre, sending inflation soaring. Diesel accounts for 40 per cent of the total consumption of petroleum products and has a 4.67 per cent weight in overall inflation.

After considering the Kelkar panel’s recommendations, the ministry had proposed an upfront increase of Rs 4.50 a litre, besides monthly hikes of Rs 1.50 a litre, to eliminate revenue loss of Rs 94,808 crore on sale of diesel — currently 60 per cent of the total revenue loss of Rs 1,60,318 crore estimated for this financial year. To eliminate the Rs 9.60 loss on sale of a litre of diesel to retail consumers, by raising price by 45 paise a month, OMCs would need at least 21 hikes.

Thursday’s decision, however, will not make any difference to the government’s subsidy bill. Finance Minister P Chidambaram said he was not factoring in any change in fuel subsidy for this financial year.

Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum have been incurring a daily revenue loss of Rs 384 crore on sale of diesel, LPG and kerosene. This is primarily due to a 14 per cent fall in the value of the rupee against the dollar. Every one-rupee fall adds Rs 10,420 crore to the companies’ revenue loss, while a dollar increase in a barrel of crude oil pushes it up by Rs 5,190 crore.