Government hikes fuel price, runs into opposition-25/6/10

25/06/2010

Government hikes fuel price, runs into opposition

New Delhi: The Indian government on Friday lifted decades of control on petroleum pricing as it hiked the prices of petrol, diesel, kerosene and cooking gas, inviting a barrage of protests from not only opposition parties but some of its own allies.

Pay more: Govt increases petrol, diesel prices


The Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee approved a proposal to make the prices of auto fuels market-driven and boost the revenues of oil exploring and marketing companies.

Announcing the decision, Petroleum Secretary S. Sundareshan said the prices of petrol "will be market determined both at the refinery gate and retail level".

As a result, petrol will now be costlier by Rs 3.50 a litre.

Simultaneously, the government hiked the prices of diesel by Rs.2 a litre, kerosene -- known as the poor man's fuel, and traditionally spared during periodic fuel price hikes -- by Rs.3 a litre and cooking gas by Rs.35 per cylinder.

"We are fully aware of the sentiments of the people. We are fully aware of some difficulty it may cause. But in the larger interest of the Indian economy, it is absolutely essential that the consumers also share the burden of rising prices of crude in the international market," Sundareshan told reporters here.

The government decision ran into opposition from its own allies, including the very vocal Trinamool Congress and the DMK.

The Communist Party of India-Marxist (CPI-M) and its allies accused the government of giving "false arguments to justify these measures" and demanded immediate scrapping of the price increase.

The Marxist-affiliated Centre of Indian Trade Unions (CITU) called for a 24-hour public transport strike in West Bengal Saturday.

The Bharatiya Janata Party (BJP) also demanded a rollback.

"The government has made a mockery of the people's trust after winning the (Lok Sabha) elections," BJP spokesperson Prakash Javadekar said.

Petroleum Minister Murli Deora admitted that Trinamool chief and Railway Minister Mamata Banerjee had not attended the EGoM meeting, but added that the other allies including the DMK were part of the decision.

Pay more: Govt increases petrol, diesel prices

However, DMK's Chemicals and Fertilizers Minister M.K. Alagiri later said the decision would put an additional burden on the public.

The move is likely to stoke inflation, which is already high, and further push up prices of essential commodities like vegetables and foodgrain.

The finance ministry's chief economic adviser, Kaushik Basu, admitted that there was likely to be an impact on the wholesale price index inflation, which was 10.16 percent in May.

"The (decontrol of petrol prices), coupled with price increase for LPG (cooking gas) and kerosene, will have an immediate positive impact on inflation. I expect an increase of 0.9 percentage points in the monthly Wholesale Price Index (WPI) inflation," he said in a statement.

However, he added that since the hike in fuel prices would push down fiscal and revenue deficit, "they will exert a downward pressure on prices".

Sundareshan said that even after the changes, the under recoveries will still be around Rs.53,000 crore at the current international price of crude, which stands at $75 a barrel.

"Government and upstream companies will have to find the funds to compensate the oil marketing companies," he said.

Mamata Banerjee said she was unhappy with the government decision but added that her party would not topple the Congress-led United Progressive Alliance (UPA) government.

"My party does not support this hike. This puts pressure on the people. The government should reconsider the decision," she said.

There was anger on the street too.

"These steps will break the back of the middle class. We are doomed," cried 31-year-old Pulkit Sharma.

The Congress vociferously backed the government move.

"We believe the government must have been constrained to take these steps and ensure that the impact is minimal as much as possible," spokesperson Jayanthi Natarajan said.

Pay more: Govt increases petrol, diesel prices

The new petrol and diesel prices would be as follows:

Mumbai:
Petrol -- Rs 55.70 against earlier price of Rs 52.20
Diesel -- Rs 41.88 against Rs 39.88

Delhi:
Petrol -- Rs 51.43 against Rs 47.93
Diesel -- Rs 40.10 against Rs 30.10

Kolkata:
Petrol -- Rs 55.17 against Rs 51.67
Diesel -- Rs 39.99 against Rs 37.99

Chennai:
Petrol -- Rs 55.63 against Rs 52.13
Diesel -- Rs 40.05 against Rs 38.05

The new prices for LPG cylinder would be as follows:
Delhi: Rs 316.20, Mumbai: Rs 325, Kolkata: Rs 328.70 and Chennai: Rs 350.90

The politically sensitive decision is likely to stoke inflation which is already high and lead to further rise in prices of essential commodities like vegetables and foodgrains.

"We are fully aware of the sentiments of the people. We are fully aware of some difficulty that it may cause. But, in the larger interest of the Indian economy, it is absolutely essential that the consumers also share the burden of rising prices of crude in the international market," Sunderashan told reporters.

Sundareshan said diesel would also be decontrolled eventually.

But the prices of kerosene and cooking gas will continue to be regulated by the government, he said.

The eGoM took the decision based on the recommendations of the Kirit Parikh Committee, which had suggested decontrol of fuel prices.

"This price which is likely to be very reasonable, being market-determined, can be easily accommodated by users of petrol in the country," added Sunderashan.

He said the impact of the hike on a petrol-driven four-wheeler would be only an additional Rs.190 per month, while a two-wheeler user may have to spend out an extra Rs.30-35 per month.

Pay more: Govt increases petrol, diesel prices

"If the eGOM had not done this, the under-recoveries for diesel alone would have been Rs.23,000 crore, which is a burden which the government and upstream oil companies cannot bear," he said.

Kerosene, which is distributed by the government on subsidized rates to below poverty level families, saw the largest hike of 33 percent.

"It has to be borne that the price of kerosene has not increased since 2002," said the petroleum secretary. In Delhi, the current price of kerosene before the hike is Rs.9.09 per litre.

Oil marketing companies, which were bearing huge losses on selling cooking gas at subsidised rate, also heaved a sigh of relief.

Sundareshan said that even after the changes, the under-recoveries will still be around Rs.3,000 crore at the current international price of crude at $75 per barrel.

"Government and upstream companies will have to find the funds to compensate the oil marketing companies," he said.

BJP and the Left parties condemned the hike and have threatened to launch an agitation.

After dilly-dallying, the Empowered Group of Ministers (EGoM) agreed with Oil Minister Murli Deora's proposal to free petrol prices from government control. Union Railway Minister Mamta Banerjee and Agriculture Minister Sharad Pawar did not attend Friday's meeting.

There was near-unanimity among other members of the EGoM on bringing about market-linked prices for petrol, a fuel generally used by the well-off.

However, sources said that freeing diesel prices was out of the question because the fuel was used by the transport and agriculture sector and, therefore, had close links with the inflation rate.

Freeing of petrol prices would reduce the Rs 74,300-crore deficit by about Rs 5,000 crore. A one rupee per litre hike in diesel prices would cut losses by Rs 3,800-4,000 crore. Deora had, on more than one occasion, briefed the Prime Minister Manmohan Singh and Mukherjee on the crisis that would befall oil PSUs if no decision was taken in this regard.

But the UPA government seems wary of freeing fuel prices as such a move can add to the already-high inflation. In May, WPI-based inflation provisionally entered double digits at 10.16 per cent.

State oil firms currently lose about Rs 215 crore per day on selling fuel below the imported cost. At present, petrol is being sold at Rs 3.73 a litre below its cost, diesel at a loss of Rs 3.80 per litre, kerosene at Rs 18.82 a litre and domestic LPG at a discount of Rs 261.90 on every 14.2 kg cylinder.

India's annual domestic oil product sales in May rose 6.3 per cent, its highest jump since October, to 12.38 million tonnes, on higher demand for auto fuels, government data showed on Thursday.

Petrol sales during the month rose an annual 13.1 per cent to 1.25 million tonnes on a 30-per cent jump in car sales as rising incomes and a rapidly expanding economy coupled with subsidised fuel prices perk up the demand.

Diesel sales grew by 11.1 per cent to 5.30 million tonnes in May, indicating higher demand from farm and industrial sectors. Diesel runs pump sets used for irrigating farm lands. Auto fuel sales rose as dealers stocked the fuel anticipating hike in prices.

Crude oil imports, fell 14.1 per cent to 11.54 million tonnes, or 2.73 million barrels per day (bpd), in May. In May, fuel exports were down by 40.1 per cent from a year earlier, while imports grew 3.4 percent.

The government data does not include imports and exports by Reliance Industries' new 580,000 bpd export-focused refinery at Jamnagar, in western Gujarat state.

Source: India Syndicate/Agencies