COMMENTARY
INTERVIEW
SPECIALS
CHAT
ARCHIVES

Government at last hikes price of petrol, diesel, LPG

The government late on Monday night resorted to a modest hike in the prices of diesel, petrol and liquefied petroleum gas but spared the common man's fuel, kerosene, to meet the burgeoning oil pool deficit which has touched a whopping Rs 180 billion.

While diesel will go up by Rs 1.80 per litre, petrol will be dearer by Re 1 per litre, and LPG by Rs 15 per cylinder. The price hike came into effect from the midnight of Monday-Tuesday, Petroleum Minister Janeshwar Mishra announced at a press conference after a meeting of the Union cabinet.

The subsidy on diesel, the highest consumed petroleum product, goes with the current price revision, linking it to international prices. The government has also decided to phase out subsidy on LPG which at present is Rs 65 a cylinder, over the next two years.

Mishra said the government has also decided to pump in Rs 180 billion to the oil companies by way of loans to cover their cumulative outstanding as on June 30 this year. The loan would be utilised by the oil companies to buy special bonds to be issued by the government.

Mishra said these bonds could be used by the oil companies to mop up Rs 50 billion from commercial banks for the import of crude.

Describing the modest hike as painless surgery, the petroleum minister said, "Had we not resorted to this, the country would have had to go without diesel during November when the rabi crop is sown."

The petroleum minister said the price hike would have a direct impact on the wholesale price index by about 0.74 per cent which could be easily absorbed by the economy considering that the inflation has touched a historic low of 3.75 per cent.

The government has also agreed in principle to dismantle the administered pricing mechanism in a phased manner. The details will be finalised by the petroleum ministry in consultation with the finance ministry.

Petroleum products like fuel oil, naphtha and bitumen will be made available to the industry at import parity prices. This will help a broad spectrum of small- and medium-scale industries such as engineering, textiles, and foundries. This policy will help new power projects which are based on liquid fuel to make better fuel choices leading to lower cost of power generation.

The decision to take bitumen out of the administered price mechanism will help make available better quality of the product and thereby improve the road infrastructure in the country.

Mishra said natural gas prices will be revised suitably for sectors other than fertiliser production shortly.

Excise duty of diesel cars will be reviewed to discourage avoidable diesel consumption by luxury vehicles.

It has also been decided to restructure excise and customs duties. Cess on petroleum products will be finalised in the next six weeks by the petroleum ministry in consultation with the finance ministry.

The political clearance for the hike was given by the United Front's two top policy-making bodies, the core and steering committees, two weeks ago after protracted discussions and procrastination on the issue for several months.

The issue was discussed in four meetings of the committee but the ruling Front had to give into pressure from the Left parties. The Left parties had pressed the government to take up alternative measures like scrapping of customs duties on crude and government compensating the deficit in the oil pool account which has mounted to nearly Rs 180 billion.

The last price revision was effected in July 1996 when prices of petrol, diesel and LPG were hiked by 30 per cent. The then H D Deve Gowda government succumbed to pressure and rolled back price of diesel by 15 per cent.

The Front government had to resort to a price hike immediately on assuming power since the deficit in the oil pool account was allowed to mount during the P V Narasimha Rao government. The Congress government had not revised the prices of petroleum products for nearly four years for political reasons.

EARLIER REPORT:
Front leaders give green signal for petroleum products hike

UNI