Panel for steep hike in diesel, kerosene and gas prices

A government-appointed committee has suggested a steep hike in diesel, kerosene and cooking gas prices with immediate effect to save the exchequer Rs 72,000 crore towards fuel subsidy.

It has recommended a hike of Rs 5 per litre for diesel, Rs 4 for kerosene and Rs 250 for a cooking gas cylinder.

The Kirit Parikh Committee, which was tasked to suggest a methodology for pricing of diesel and cooking fuel, also recommended limiting number of subsidised cooking gas cylinders per household to six instead of nine. The committee also favoured a switch to market-determined price for diesel instead of the present government-controlled regime.

The report, which was presented to Petroleum Minister Veerappa Moily on Thursday, comes at a time when the 2014 general elections are round the corner. The government, already facing criticism over the soaring onion prices, can ill afford to accept any recommendation which leads to a price rise.

“The suggestions need to be examined throughly before they are implemented. There is a process involved in accepting and implementing such reports. We will decide on it in consultation with the Finance Ministry,” Moily told reporters after Parikh, a former Planning Commission member, presented his report.

“We recognise it may not be possible right now to increase prices by the same quantum as suggested in the report,” Parikh told mediapersons.

The Finance Ministry has severely opposed several recommendations of the committee. The ministry is not in favour of trade parity pricing formula for controlled petroleum products. It has already sent a dissent note on the committee’s recommendations.

The Finance Ministry wants auto fuel (petrol and diesel) to be priced at export parity from the existing trade parity pricing, saving up to Rs 18,000 crore in annual subsidy outgo. But refiners said there was no import duty on crude oil. If import duty on petrol and diesel was also abolished, there will be no duty protection for the refineries, which included customs duty in the pricing to make up for freight, Central Sales Tax and other charges.

At present, diesel is priced at trade parity, of which 80 per cent is import price and 20 per cent export rate. Kerosene and LPG are priced at import parity.

The committee also suggested that the oil companies be paid a fixed subsidy of Rs 6 per litre.

Analysts said the government may be looking to alter the way diesel and cooking fuels were priced to reduce the subsidy burden. But the timing was not ripe and the recommendations may not be implemented, they added.