Modest Petrogoods Price Hike Likely

A hike in the prices of petroleum products seems inevi-table, with the finance ministry yesterday rejecting the petroleum ministrys demands for slashing customs and excise levies on the oil sector at a crucial inter-ministerial meeting convened by Prime Minister I K Gujral

Sources said petroleum minister T R Baalu suggested the abolition of customs duties on import of crude and excise levies on petroleum products as a means to raise at least Rs 9,000 crore to help reduce the oil pool deficit, which is currently estimated at Rs 16,000 crore.

However, the finance ministry opposed any move to roll back tariffs unless the petroleum ministry agreed to dismantle the administered price mechanism. We cant begin tinkering with tariffs within days of Presidential sanction to the budget being obtained. The very sanctity of the sanction will be questioned. Besides, a long-term view on the subject should be taken, said sources.

 

The finance ministry reportedly added that a roll back of tariffs could be considered only if it did not alter revenue projections. The ministry is not prepared to consider any tariff cut which would affect the fiscal deficit calculations, officials said.

The price hike will probably be moderate, although a final decision will be taken only after the United Front steering committee discusses the issue on May 25.

The meeting is expected to consider various possible solutions to tackle the burgeoning oil pool deficit, which is slated to touch Rs 25,000 crore by the end of the current financial year.

The Front is bitterly divided over the issue. While the Left parties insist that all other options should be exhausted before resorting to a hike, both Gujral and finance minister P Chidambaram have indicated that a hike is inevitable.

In an interview to Doordar-shan this month, Gujral had said a hike was unavoidable. It is an important part of governance to sometimes take decisions that are unpopular on the face of it, he said.

Chidambaram reiterated Gujrals statement in a subsequent interview with a private television channel, saying: The only way in which this (oil pool) deficit can be wiped out without us doing anything is for the price of oil to fall by something like $10 a barrel (from the current $17-18 a barrel). Thats not going to happen at all. Therefore, something has to be done. The way the deficit has grown in the last 20 years has not been understood by the people. The underlying assumption is that it will be a self-balancing account. Unfortunately, that principle has been lost sight of, added Chidambaram.

Sources revealed that one view expressed at yesterdays meeting was that the government should distinguish between the flow and the stock factors underlying the oil pool deficit. (The flow factor refers to the monthly accretion to the oil pool deficit, while the stock factor implies a figure at a given point of time, say, the total oil pool deficit as of April 30, 1997).

We should address the flow factor and the stock issue should be addressed over the next two years, said sources. This implies that there would be a modest price hike to prevent a further build-up in the oil pool deficit, effectively freezing it at the present level. This deficit level could then be gradually whittled away over the next couple of years.

The petroleum ministry yesterday made out a case for a downward revision of duties on various petroleum products and a nominal increase in the prices of liquefied petroleum gas (LPG), kerosene and diesel to tackle the growing deficit.

The ministry also argued against an increase in petrol prices, saying that a large number of people belonging to the low middle class were using scooters and motor-cycles to travel long distances to earn their living. Any further increase in the prices of petrol would hit them hard.

The petroleum ministry also sought to make out a case for an increase in the prices of LPG on the ground that it is heavily subsidised.