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Oil Ministry To Approach CCEA For Raising Diesel, LPG Prices

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Close on the heels of a 70 paise per litre hike in petrol prices, the oil ministry is pushing for an increase in diesel and domestic cooking gas LPG prices, even though it is unsure of political support for the unpopular move with the ruling UPA alliance.

"The most important reform is not allowing FDI in retail, but cutting subsidies on diesel, LPG and kerosene," a top oil ministry official told news agency PTI in New Delhi.

"There is absolute consensus that prices of diesel, LPG and even kerosene have to be raised. But when and how is uncertain," the official said.

He said the Vice President's election is on August 7 and "they say you cannot raise rates before that. Soon after that is the Monsoon session of Parliament and though nothing stops us from raising prices when Parliament is in session but we do not have numbers."

Prime Minister Manmohan Singh has long vowed to curb a worrying fiscal deficit by raising the price of heavily subsidised and widely used fuels such as diesel, but has not followed through because of worries about a political backlash.

Diesel prices are highly subsidised in India because of their widespread use in commercial transport as well as the farm sector; any increase in diesel prices will likely lead to higher prices, besides sparking political disaffection for the government.

Diesel, LPG and kerosene prices have not been raised since June 25 last year even though cost of raw material (crude oil) has spiralled and rupee depreciated against US dollar making imports even more costlier.

State-owned oil firms currently sell the fuel at a loss of Rs 11.26 a litre while they lose Rs 319 on sale of every 14.2-kg LPG cylinder for domestic consumption. Besides, they are losing Rs 28.56 per litre on kerosene.

Without a price hike, a staggering Rs 160,000 crore of losses on these fuel sales would have to be met by the government this fiscal.

A ministerial panel which is authorised to decide on pricing of the three fuels has not been reconstituted after its previous head Pranab Mukherjee resigned as Finance Minister to get elected as the President of India.

In absence of the Empowered Group of Ministers (EGoM), the ministry is contemplating sending a price hike proposal to the Cabinet Committee on Economic Affairs (CCEA) and leaving the decision to the Prime Minister, he said. .

Also on Tuesday, an EGoM on gas allocation and pricing was reconstituted, with Defence Minister A K Anthony at its head.

Earlier, on 12 July, sources said the government was likely to raise diesel prices after presidential polls on July 19, as it attempted to cut the amount of money it pays out to keep prices lower.

"This has been the thinking for quite some time," that a price rise could come after presidential polls, the source said, requesting anonymity.

"It is inevitable. By how much I can't say," he added. Government heavily subsidises diesel prices as the fuel powers much of the economy, especially in farming and transportation.

The source had added that gasoline prices — ostensibly already freed from government controls — were currently not causing any losses for India.

"It is under control, there is volatility both on the rupee front and oil prices (global) at the moment we are not incurring any loss," the source said.

Indian economy is already battling to avoid a sovereign downgrade to "junk" by two ratings agencies—Fitch and Standard & Poor (S&P)— which have cut their credit outlook to negative from stable, citing a slowing economy, policy inaction and worsening fiscal and current account deficits.