The Indian government Friday freed petrol from administrative control and hiked the prices of diesel, kerosene and cooking gas in a major policy reform that will help improve its fiscal position and release funds for other programmes.
Taking advantage of the current low international crude oil prices, the empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee approved a proposal to make prices of auto fuels market-driven and boost the revenues of oil exploring and marketing companies.
Announcing the decision, Petroleum Secretary S. Sundareshan said 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 per litre.
The government hiked the prices of diesel by Rs.2 a litre, kerosene by Rs.3 a litre and cooking gas by Rs.35 per cylinder.
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.
“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.
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