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PM Makes A Case For Hike In Coal, Petro Goods Prices

Prime Minister Manmohan Singh made a strong case for "phased" hike in prices of petroleum products, coal and power on 27 December as they are "underpriced" warning that failure to control subsidies would lead to cut in plan expenditure.

"Unfortunately, energy is underpriced in our country. Our coal, petroleum products and natural gas are all priced well below international prices. This also means that electricity is effectively underpriced, especially for some consumers. Immediate adjustment of prices to close the gap is not feasible, I realise this, but some phased price adjustment is necessary", Singh said while addressing the 57th meeting of the National Development Council (NDC).

Singh also cautioned that "business as usual" policies will not be sufficient to achieve the scaled down growth target of 8 per cent, which he described as "ambitious" in the current scenario. This is the second time that the Planning Commission has proposed reduction in the average annual growth target for the 12th Plan. It was first scaled down from 9 per cent to 8.2 per cent and now to 8 per cent.

Diesel prices may be hiked by Rs 10 per litre over a 10-month period and kerosene rates increased by same quantum over the next two years if a proposal being mulled in the oil ministry is accepted.

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The price hike is being considered as the government scrambles to find ways to meet an unprecedented Rs 160,000 crore deficit expected this fiscal on selling diesel, cooking gas (LPG) and kerosene below their production cost.

Price of diesel, which currently costs Rs 47.15 per litre in Delhi, was last revised on September 14 when it was hiked by a steep Rs 5.63 per litre. Kerosene rates have not changed since June last year and it currently costs Rs 14.79 per litre in Delhi.

"We are left with no choices... there is a need to raise prices. The government is contemplating raising diesel prices by Re one per litre each month for next 10 months to bring retail rates at par with their cost," an oil ministry source said in New Delhi.

Need To control Subsidies
The apex policy-making body NDC, which comprises Cabinet ministers and state chief ministers, was convened to approve the 12th Five Year Plan (2012-17) which seeks to peg the average annual growth rate at 8 per cent, as against 8.2 per cent proposed earlier.

Drawing attention to the need to control subsidies, Singh said some subsidies were a normal part of any socially just system but they should be well designed and effectively targeted. The total volume must be kept within limits of fiscal sustainability.

"Failure to control subsidies within these limits only means that other plan expenditures have to be cut or the fiscal deficit target exceeded," he said.

In his address, Singh also referred to the recent gangrape of a 23-year old paramedic student in the capital and said the government would accord high priority to safety and security of women as "there can be no meaningful development without the active participation of half the population".

A Long-term Plan
State-owned oil companies currently sell diesel at a loss of Rs 9.28 per litre and the hikes over the next 10 months will eliminate all of the losses and absolve the government from providing any subsidy on the nation's most consumed fuel.

The source said price of kerosene could be increased by Rs 10 over a two-year period considering it is being used as a cooking fuel by the poor. The price hike along with promoting use of LPG and natural gas as fuel would help cut consumption of the kerosene by 20 per cent, he said.

While government is likely to raise soon the number of subsidised cooking gas (LPG) from 6 to 9 cylinder of 14.2-kg per household annually, the ministry wanted to have just two rates for the fuel -- a subsidised price and a market rate, instead of four rates presently, he said.

Subsidised LPG costs Rs 410.50 per 14.2-kg cylinder and any household requirement beyond current cap of 6 cylinders is to be bought at near market price of Rs 895.50 per bottle. For non-domestic use, a 14.2-kg LPG cylinder costs Rs 1,156 while a 19-kg cylinder for commercial use is priced at Rs 1,619.

The source said state-owned Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp together in first six months of current fiscal lost Rs 85,586 crore on selling diesel, domestic LPG and kerosene at government-controlled rates which are way below their cost. Of this, the bulk Rs 52,711 crore was on account of losses on diesel.

The government has promised a cash support of Rs 30,000 crore to cover a part of the Rs 85,586 crore revenue loss on fuel sales during April-September. Upstream oil firms like ONGC have chipped in Rs 30,170 crore, leaving a balance Rs 25,417 crore uncovered, he said.

The oil ministry, he said, wants finance ministry to make up for this shortfall as well as the revenue deficit expected in the remaining six months of current fiscal.

In all, the oil ministry has sought Rs 105,525 crore from the Finance Ministry this fiscal to subsidise diesel and cooking fuel.

State-owned fuel retailers are likely to end the fiscal with a revenue loss of over Rs 1,63,000 crore on sale of diesel, domestic cooking gas (LPG) and kerosene at government- controlled rates that are way lower than cost.

Of this, close to Rs 60,000 crore will come from upstream companies Oil and Natural Gas Corp (ONGC), Oil India Ltd and GAIL India. For the rest, the Oil Ministry has asked the Finance Ministry to give cash subsidy.

Adjusting Energy Prices
Noting that India imports oil, natural gas and even coal, the Prime Minister said on 27 December that some adjustment in price was necessary to moderate demand of these products and curb imports.

"Energy pricing is critical for both objectives. If domestic energy prices are too low, there will be no incentive to increase energy efficiency or to expand even supply", the Prime Minister said, adding the centre and the states need to work together to create awareness in the public about the need to limit energy subsidies.

Energy experts, Singh said, were unanimous that the country cannot expect to achieve rapid, inclusive and sustainable growth if it did not undertake a phased adjustment in energy prices to bring them in line with world prices.

He further said failure to contain subsidy would mean either cutting plan expenditure in other sectors or exceeding the fiscal deficit target.

Describing the current economic situation as "difficult", the Prime Minister said the first priority of the government would be to reverse slowing growth rate.

"The continuing crisis in the global economy has reduced growth everywhere... Our first priority must be to reverse the slowdown. We cannot change the global economy, but we can do something about the domestic constraints which have contributed to downturn," Singh added.



 




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