LPG cap raised to 9; pay more for diesel

Friday, 18/01/2013

http://www.tribuneindia.com/2013/20130118/main1.htm

New Delhi : The government decisively acted on deregulation of diesel pricing on Friday by allowing oil companies to raise prices periodically and increased the cap on subsidised LPG cylinders from six per year per household to nine.

The decision, announced after a Cabinet meeting, means that like petrol, oil companies have been allowed to increase the price of diesel to reduce the under-recovery of over Rs 9.50 on diesel.

Following the decision, diesel prices have been increased by 45 paise a litre and petrol prices decreased by 25 paise a litre. Non-subsidised LPG cylinders will cost Rs 46.50 more per cylinder. There is a move to raise diesel price by 50 paise every month for the next few months to bridge the gap. For bulk consumers, which is primarily industry, diesel will now be sold at market prices.

With all these changes, under recovery on diesel will decrease by Rs 3,400 crores by March 2013 and Rs 15,000 crore annually. The new arrangement transfers the onus of price hike from the government to oil companies.

"We have given some liberty to oil marketing companies to raise diesel prices in small doses. They are authorised to make small price correction from time to time," Petroleum Minister M Veerappa Moily said. "They should exercise this discretion in such a manner that inflation is not impacted. Also, the entire burden is not put on consumers."

Finance Minister P Chidambaram maintained that the oil companies have been allowed to make a “small correction from time to time”. “I am not factoring in at this moment (the price rise). I am proceeding on the basis that the subsidy bill remains the same (as earlier)," he said.

The move will strain household budgets further as diesel is widely used in transportation of passengers and goods, agriculture and industry and tends to stoke inflation. Retail inflation is already very high at more than 10.5 per cent and the impact of diesel hikes will have to be seen.

With rail fares increased last week, it seems the government is keen on taking the unpopular decisions before unveiling a feel-good Budget. Household budgets are already under pressure from stagnant incomes, lesser jobs and rising expenses.

The move on diesel came in for attack from the Opposition and transporters. “We criticise and condemn the decision because it will have a cascading effect on prices. This is an anti-people decision,” a BJP spokesperson said. The CPM said the UPA government was adamant to further burden the people already suffering from ever-increasing prices of all essential commodities.

“The road transport industry won't be able to absorb any imminent hike in diesel prices and suggests that the government should reduce the excise, custom duty and VAT on diesel, which constitutes around 50 per cent of the diesel cost," the All India Motor Transport Congress (AIMTC), the industry body of transporters, said in a statement.

The Vijay Kelkar Committee report had recommended wiping out the entire Rs 9.60 a litre subsidy on diesel through Re 1 per litre hikes every month. The price of diesel, last revised on September 14 by a steep Rs 5.63 per litre, may be raised in small dozes of up to Rs 1 per litre each to make up for the Rs 96,000 crore loss at current rates.

The cap on LPG cylinders has been raised from six to nine following several demands that six cylinders per year is not adequate as the remaining come at almost double the price. After today’s decision, consumers will get five subsidised cylinders instead of three in the period up to March 31, 2013.