The government is likely to hike diesel and LPG prices to partially offset the rising under-recoveries on petroleum products in the coming days, India Ratings and Research (Ind-Ra) has said.
“The significant increase in under-recoveries in the past few months is likely to lead the government of India to effect a one-time increase in the price of diesel and subsidised LPG cylinders,” says Abhinav Goel, senior director, Ind-Ra.
Earlier on July 10, petroleum minister M Veerappa Moily has asked finance minister P Chidambaram to provide an additional Rs 63,000 crore in the oil ministry’s budget to compensate oil marketing companies (OMCs) for massive under-recoveries on account of the steep fall in the rupee. He had pointed out that his ministry expects the under-recovery of the public sector oil marketing companies to reach Rs 1,23,192 crore for 2013-14. The sum will be almost double the Rs 65,000 crore budgeted by the finance ministry for this fiscal.
On August 30, Moily wrote to Prime Minister Manmohan Singh to increase diesel prices by Rs 3-5 per litre, kerosene by Rs 2 and LPG by Rs 50 per cylinder as an express remedy to arrest under-recoveries.
Ind-Ra said the under-recovery on diesel has increased to Rs 12.12 per litre from Rs 9.03 in beginning of the year despite an increase of 50 paise a litre every month since January 2013. While the under-recovery on diesel had fallen to Rs 3.73 per litre (fortnight effective May 16, 2013) due to a fall in oil prices, but has been sharply increasing since then because of spike in crude oil prices and fluctuations in rupee-dollar exchange rates.
Moily told Chidambaram that financial benefits envisaged by the government by allowing oil marketing firms to increase diesel prices by 40-50 paise a month and capping supply of domestic LPG cylinders to contain under-recoveries of around Rs 97,000 crore (as on May 1) have been neutralised due to the falling rupee.