Petrol prices up Rs 4 a litre, diesel Rs 2

No change in cooking gas, kerosene prices; negligible impact on inflation.

With international crude oil prices hovering at a seven-month high of around $70 a barrel, the government today raised prices of petrol by Rs 4 a litre and diesel by Rs 2 from midnight, but left cooking gas and kerosene prices unchanged.

The decision was taken at a meeting of the Cabinet Committee on Political Affairs, following a Congress core committee meeting chaired by party president Sonia Gandhi.
 

CRUDE SHOCK Price in Rs per litre
Delhi
	Old	New
Petrol	40.62	44.63
Diesel	30.86	32.87
Mumbai
Petrol	44.55	48.76
Diesel	34.45	36.7
Chennai
	Old	New
Petrol	44.24	48.52
Diesel	32.82	34.98
Kolkata
Petrol	44.05	48.25
Diesel	33.21	35.03

Today’s move is expected to ease under-recoveries — the differential between the import cost and the selling price of cooking and automobile fuels — for the three government oil marketing companies by Rs 13,000 crore from the earlier estimate of Rs 70,000 crore on an annualised basis.

Indian Oil, BPCL and HPCL had seen losses on fuel sales widening to about Rs 170 crore a day prior to the increase. S V Narasimhan, director (finance) of Indian Oil, the largest oil marketer, told Business Standard that the increase would help his company earn Rs 750 crore more a month.

Terming today’s price increase “ad-hoc”, Petroleum Secretary R S Pandey said the government had not taken a widely expected decision on pricing freedom for oil companies, adding that only a portion of the price burden was being passed on to consumers. The three oil marketers will still be left with under-recoveries of Rs 2 a litre on petrol and Rs 1.62 on diesel.

The companies will also continue to incur Rs 15.26 a litre loss on kerosene and Rs 92.96 on every cylinder of cooking gas.

Oil companies are partly compensated for under-recoveries by government bonds and discounts from state-owned upstream suppliers.

Pandey said the government will bear a loss of over Rs 30,000 crore in this financial year on LPG and kerosene, but added that the government was yet to take a decision on whether the subsidy to oil companies will be paid in cash through a Budgetary allocation or in the form of bonds.

The Union budget to be presented on July 6 is likely to include oil bonds and a cash subsidy though it might not make any duty changes.

Petroleum Minister Murli Deora said cooking fuel prices were unchanged because Sonia Gandhi, who is also chairperson of the United Progressive Alliance (UPA), had told him that the interests of the common man should be protected.

Experts think today’s price rise may not push inflation, currently at -1.14 for the week ending June 13, back into positive territory.

Petrol, high speed diesel, kerosene and LPG have a weight of 5 per cent in the wholesale price index that constitutes the inflation rate.

"At the present levels, it would not add more than 0.33 per cent to the inflation rate. This is the first-round impact," said D K Joshi, principal economist of market rating agency CRISIL.

There will, however, also be a second impact on inflation rate, owing to the rise in the cost of transportation, which in turn will push up prices of food and manufactured products.

Joshi, however, maintained that unlike the Rs 2 increase in diesel and Rs 5 in petrol in June 2008, when the crude oil price was beginning to peak (it touched $142 a barrel in July), this was the right time to increase the price since inflation had turned negative.

After touching a low of $32.40 in December, crude oil prices have been firming up since May on improved economic sentiments and anticipation of a demand revival.