Govt Bites The Bullet; Hikes Diesel Price By Rs 5

<div>The Manmohan Singh government has finally bitten the bullet. Despite stiff opposition from allies in the UPA government, the Cabinet Committee on Political Affairs (CCPA) hiked the price of diesel by Rs 5 per litre excluding value added tax (VAT).<br /><br />In a move to decontrol LPG (liquefied petroleum gas) prices, it has restricted the number of subsidized LPG cylinders to six in a year. This means that during the current financial year, subscribers will be entitled to another three subsidized LPG cylinders. Consumers can get any number of additional LPG cylinders at market prices. While LPG cylinders cost Rs 399 in Delhi, oil marketing companies will announce the market rate of LPG on a monthly basis.<br /><br />However, petrol and kerosene prices are unchanged.<br /><br />Out of the Rs 5 per litre increase in diesel prices, Rs 1.50 per litre is on account of increase in excise duty. The balance increase of Rs. 3.50 per litre will help reduce the under-recovery of oil marketing companies by about Rs 15,000 crore for the remaining part of the fiscal. The under-recovery on sale of diesel during 2012-13 after this price hike is estimated to be over Rs 103,000 crore. In Delhi diesel will retail at 46.95 per litre from the current Rs 41.32 per litre.<br /><br />Prices of petrol remain unchanged, despite an under-recovery of about Rs 6 per litre. The loss to the oil companies will be offset by a reduction in excise duty by Rs 5.30 per litre.<br /><br />Restricting subsidised LPG cylinders to six is expected to reduce the under-recovery by about Rs 5,300 crore for the remaining part of the financial year. The under-recovery on sale of LPG during 2012-13 even after this measure is estimated to be over Rs 32,000 crore.<br /><br />These decisions are expected to reduce the under-recovery of OMCs by about Rs 20,300 crore and the under-recovery for 2012-13 will be about Rs 1,67,000 crore which is more than the under-recovery of Rs 1,38,541 crore incurred by OMCs during 2011-12.</div><div><br />New Delhi subsidises the prices of diesel, cooking gas and kerosene to dampen inflation and protect the poor, a popular policy that has nevertheless put a severe strain on public finances.<br /><br />However, fears of a political backlash mean pump prices have remained unchanged for more than a year. The price increase will almost certainly trigger street and political protests ahead of state elections.<br /><br />The government has always acknowledged that a price hike is essential for curbing the fiscal deficit, a pre-condition for reviving growth in Asia's third largest economy.<br /><br />A price increase will also aggravate inflation, as costs, such as road freight rates, will rise.<br /><br />&nbsp;</div>