Planning Commission pitches for hike in auto fuel prices

Union Petroleum Ministry mulls implementing Kirit Parikh report

“The auto fuel prices should be hiked if the global crude oil prices, which are around $80 per barrel, continue their upward trend,” suggested Planning Commission Deputy Chairman Montek Singh Ahluwalia.

“The auto fuel prices have to be revised upward if the international crude prices continue to move up. Otherwise it would have a negative impact on the country’s fiscal deficit (net difference between the government’s expenditure and income),” he told newspersons here. The global crude oil prices, which at one time shot up to a historic high of $147 per barrel in 2008, remained at an average of nearly $55 per barrel in 2009 mainly due to global economic slowdown.

Since October this year with slow pick-up in the global economy, the international oil price has been witnessing a rise and is currently hovering around $80 per barrel. On Budget day, retail prices of petrol and diesel were increased following the budgetary proposal to raise excise duty on petrol and diesel by Rs 1/litre and import duty from 2.5 per cent to 7.5 per cent as part of the rollback of stimulus measures and to contain rising fiscal deficit.

The recent rise in auto fuel prices is of no help to the state-owned oil marketing companies (OMCs), who are currently incurring revenue losses by selling four mass-consumed petroleum products–petrol, diesel, domestic cooking gas (LPG) and kerosene–below cost prices, as the differential amount arising out of duty hike is going to the national exchequer.

As per an estimate the state-owned OMCs are likely to incur a revenue loss of nearly Rs 45,000 crore during 2009-10 by selling petroleum products below cost prices.

Finance Minister Pranab Mukherjee has sanctioned a cash assistance of Rs 12,000 crore during 2009-10 to help state-owned OMCs to reduce their burden arising out of revenue loss. As per the Budget 2010-11, the government will not issue any more oil bonds to state-owned OMCs as part of strategy to reduce the fiscal deficit.

Mukherjee has left it to the Petroleum Ministry to take a call on the Kirit Parikh Committee, which has recommended a road map for putting in place a viable oil pricing mechanism.

It has recommended that the subsidy burden of the government can be maintained at a manageable level if free market pricing of petrol and diesel is allowed along with periodic increases in the prices of LPG and kerosene supplied through Public Distribution System.
Realising that the mounting fiscal deficit would leave no elbow room for the government to increase subsidy for the auto fuel, the Petroleum Ministry is contemplating moving the Cabinet to implement the Kirit Parikh report, sources said.

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