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Govt Agrees In-Principle To Free Diesel Prices

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[The government on Tuesday said it has agreed in-principle to deregulate diesel prices, but is not considering similar proposal for the cooking gas. "Government has, in principle, agreed to make the prices of diesel market determined," Minister of State for Finance Namo Narain Meena said in a written reply to the Rajya Sabha. Opposition Bharatiya Janata Party (BJP) attacked the government for its in-principle decision to decontrol diesel prices even as Finance Minister Pranab Mukherjee said the move was decided in June last year but refused to specify whether it is being implemented. "They (government) are saying that they are doing it in-principle and they will modulate it to the needs of the people. But this means that they are going to increase diesel prices and the diesel shock is coming in few days from now," BJP spokesman Prakash Javadekar told reporters. "What Kaushik Basu (PM's Economic Adviser) was saying and has indicated is now confirmed by government in its written reply also. "...And we oppose such a move because diesel is a basic fuel for all types of transport and that will have a cascading effect on price rise," he said outside Parliament House. When asked about the move, Mukherjee said the decision was taken in June last year. "That decision was taken in June, 2011," he told reporters outside Parliament House. While petrol prices are market-linked, the government fixes the rates of LPG, kerosene and diesel, which results in a large budgetary expenditure on subsidies. "There is no proposal at present to fully deregulate cooking gas price," Meena said. He said the government continues to fix the price of diesel in order to shield the common man from the impact of rising crude oil prices and the resultant inflation. "In order to insulate the common man from the impact of rise in international oil prices and the domestic inflationary conditions, the government continues to modulate the retail selling price of diesel," Meena added. Finance Minister Pranab Mukherjee had vowed to raise fuel prices as soon as possible to tackle a rising subsidy burden and large deficits, but the move is politically fraught for the weak coalition government, already under fire over high inflation. Diesel prices were last raised in July and the government has still not fulfilled a promise to fully liberalize the market. It was expected to raise prices earlier this year. India imports about 80 per cent of its crude oil needs. Rising global prices increases its import bill and widens the trade and current account deficits. Crude Price Rising Global crude oil prices have surged since the beginning of 2012 on account of geo-political concerns in the Middle East and abundant global liquidity. The price of Brent crude rose to $120 a barrel in mid-April from $111 in January. For the current fiscal, the government has made a provision of Rs 43,580 crore for oil subsidies, of which Rs 40,000 crore has been earmarked as compensation to oil marketing companies (OMCs) for selling petroleum products at lower than market rates. During the 2011-12 fiscal, the government has paid Rs 65,000 crore to OMCs on account of under-recoveries, of which Rs 20,000 crore alone was for the January-March quarter. High subsidies are putting pressure on the country's fiscal deficit, which touched 5.9 per cent of GDP last fiscal and is pegged at 5.1 per cent in 2012-13. India imports about 80 per cent of its crude oil requirement. The government targets to bring down the subsidy bill to below 2 per cent of GDP this fiscal and 1.75 per cent in the subsequent years. Refiners Threatened To Hike Prices It may be remembered State-run fuel retailers have threatened to raise petrol prices sharply if the government does not compensate them for revenue losses on retail sales, Indian Oil Corp  said on Tuesday in a statement. It said the government should 'temporarily' consider petrol as a regulated commodity on a par with other subsidised fuels -- diesel, cooking gas and kerosene -- and provide cash compensation for retail sales or reduce factory gate tax on the fuel to the extent of revenue losses. IOC said state-run refiners cannot sustain the current scenario where they import crude oil at $121.29 per barrel and sell at $109.03 per barrel. "Continuation of such pricing will only impede the ability of the Company to import crude oil and may affect product supply-demand balance," IOC said in the statement. It added the alternative was to "increase the price of petrol by Rs.8.04 per litre (excluding State levies) with immediate effect." The companies previously raised petrol prices on December 1. Earlier, a senior government source had told Reuters that retail prices of subsidised fuels, including diesel, will be raised once Parliament approves the finance bill for the current fiscal year. Parliament is expected to consider the finance bill on May 7 and approve it a couple of days after that. "The government's credibility on fiscal consolidation is at stake. After crude prices remaining over $120 a barrel, hike in oil (fuel) prices is certain," the source, who did not wish to be named because of the sensitivity of the issue, told Reuters. "We cannot do without it. Once the finance bill is approved, oil prices including diesel would be raised," he said. In theory, India allows state fuel retailers to fix petrol prices to market rates but continues to cap prices of other fuels at a lower rate to rein in inflation and protect the poor. However, the state fuel retailers - Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp - have not raised prices of petrol since December in line with global trends due to an unofficial dictat from the government. Any price rise will help curb rampant diesel use, which has increased as the market-driven price of alternatives like fuel oil have jumped. Diesel now accounts for a third of local fuel use. The source indicated petrol prices could be raised around the same time as diesel. Softening inflation, currently at about 7 percent, also strengthens a case for a hike in fuel prices.