Govt allows diesel price hike by 50p

Cap on LPG raised from six to nine

Govt allows diesel price hike by 50p

The government on Thursday allowed the public sector oil companies to raise diesel prices by 50 paise every month, a move that is set to shoot up the daily budget of the commoner.

It, however, sought to neutralise the effect by raising the cap on subsidised cooking gas cylinders from six to nine. A slash in petrol prices by 30 paise, likely from Friday, also came as a relief.

Sources said the oil marketing companies may cut petrol prices from Friday. The decision to hike diesel prices and raise LPG cap was taken at a meeting of Cabinet Committee on Political Affairs.

Soon after the decision, Petroleum Minister Veerappa Moily said the oil marketing companies have been authorised to make diesel price correction from time to time, a move that translates into partial decontrol of the highly subsidised fuel.

Diesel prices for bulk users like railways, defence and public sector companies will be hiked by a whopping Rs 11 per litre, implying the end of subsidy regime for them.

The decision is in line with the Vijay Kelkar Committee which recommended wiping out the entire subsidy on diesel through Re 1 per litre hikes every month.

Moily said the CCPA also decided to raised the cap on supply of subsidised LPG from six to nine cylinders each for every household in a year. He also made it clear that for this fiscal year ending March 31, every household will get five subsidised refills in place of three decided earlier.

Subsidised 14.2 kg LPG cylinder costs Rs 410.50 while its market price is just double. The increase in cap from six to nine would mean an additional subsidy outgo of Rs 9,300 crore annually.

The price of diesel was last revised on September 14 when it was hiked by a steep Rs 5.63 per litre. A decision on capping the subsidised LPG cylinders to six also came during the same time, but was met with widespread protest from political parties and public.

It had also led to UPA ally Trinamool parting ways. The sources said the oil firms have been asked to hike the rates of diesel until they are able to cover Rs 9.60 per litre loss they incur on diesel.According to estimates, a Re 1 hike in diesel price leads to a Rs-800 crore reduction in subsidy bill.

Finance Minister P Chidambaram, however, said he was not factoring in the impact of diesel price hike while computing the oil subsidy bill for the current fiscal ending March 31, 2013.

“I am not factoring the impact of diesel price hike on oil subsidy at the moment. I am proceeding with the basis that the subsidy bill remains the same. When and how oil companies will make small corrections, I can’t say,” he said.

The shares of OMCs surged after the announcement, with Hindustan Petroleum (HPCL) gaining close to 9 per cent, while Bharat Petroleum (BPCL) surged 6 per cent and Indian Oil (IOC) close to 8 per cent.

Analysts were sceptical about the implementation of the government’s decision on diesel given that it is going to face general elections next year. Analysts also pointed out that diesel could also go the petrol way, which was freed from government’s shackles as early as June 2010, but the OMCs were yet not allowed to increase rates in line with the rising global crude prices.

Economists said if price increase was effected in the course of next six months, it will improve government’s fiscal health and deficits will be lessened. However, in the short run, the hike will fuel inflation.

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