Diesel price to be hiked, LPG cap raised

New Delhi: In baby steps towards deregulation, the government on Thursday allowed oil companies to make small hikes in the price of diesel from time to time and sought to soften the blow by raising the cap on subsidised LPG to nine cylinders per household from six.
In a bold reforms decision, the government partially deregulated diesel price allowing a hike of 40-50 paise a litre per month for retail customers and nearly Rs 11 for bulk consumers.
The mix of reformist and populist decision, which was attacked by the Opposition as inflationary, was taken at a meeting of the Cabinet Committee on Political Affairs. The CCPA considered the Vijay Kelkar Committee report that had recommended wiping out the entire Rs 9.60 a litre subsidy on diesel through Re one per litre hikes every month.
Price of diesel, which was last revised on September 14 when it was hiked by a steep Rs 5.63 per litre, may be raised in small doses of up to Re one per litre each to make up for the whopping Rs 96,000 crore loss at current rates. The hike may be effected anytime soon, sources said.
"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," Oil 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." Asked what small meant, he said "small means small."
Finance Minister P. Chidambaram maintained that the oil companies have been allowed to make "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.

Officials and ministers refused to call the CCPA's decision as deregulation but experts felt that this could be the beginning of such a course.
Administered diesel price has always been a sensitive issue with the fuel being consumed in large measure by public transport and freight carriers. It is always feared that any hike in its rates can lead to a cascading effect on price.
However, LPG and kerosene rates will not be changed. There are indications that price of non-subsidised LPG, which has been frozen in November, will be allowed to come up to market levels.
Moily said diesel prices have not been deregulated and the government will continue to subsidise it.
Diesel, which currently costs Rs 47.15 per litre in Delhi, is currently sold at a loss of Rs 9.60 a litre.
Moily said the CCPA decided to raised the cap on supply of subsidised LPG from 6 to 9 cylinders of 14.2-kg each for every household in a year.
Subsidised LPG costs Rs 410.50 per 14.2-kg cylinder and any household requirement beyond the new cap of 9 cylinders is to be bought at near market price of Rs 895.50 per bottle.
The government had in September capped supply of subsidised cooking gas to 6 cylinder per household in a year with a view to check diversion to unintended beneficiaries. However the decision met with widespread protests as only 44 per cent of population used six or less cylinders in a year.

After today’s decision, consumers will get 5 subsidised cylinder instead of 3 in the period to March 31, 2013. From April 1, 2013 they will get 9 cylinders in a year.
The increase in cap would mean an additional subsidy outgo of Rs 9,300 crore annually.
For the current year, the increase in subsidy cap would mean that revenue loss on diesel, domestic LPG and kerosene sale rises from Rs 156,601 crore to about Rs 160,000 crore.
"As far as diesel is concerned, oil marketing companies have been authorised to make price correction from time to time," he said. "It (price correction) can commence even from today."
Sources said the government has kept the quantum of hike and the timing secret to avoid petrol pumps shutting stopping sales to make quick profits.
Oil Secretary G C Chaturvedi said CCPA has authorised oil firms to make "small changes over a period of time."
"There was no discussion on the quantum of price increase or the period over which these changes are to be effected… it has been left to the oil companies," he said.
He, however, emphatically stated that the government had not deregulated diesel prices. "If we are to deregulate, then diesel price will have to be raised by Rs 9.60 per litre, which is not the case. Only a small quantum of change has been permitted over a period of time."
Explaining the rationale behind the decision, Moily said the oil companies have accumulated loans of about Rs 200,000 crore as they borrowed money to fund crude oil purchases in absence of getting even the cost price for the fuel.
"This year on diesel alone Rs 96,000 crore is the under- recovery (loss)," he said. "(But for price hike) the companies will close and diesel and petrol supplies will cease."