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Diesel price hikes put on hold till elections

Flagging the Kirit Parikh committee’s proposal that subsidy on diesel must not exceed R6/litre, the government has decided not to persist with the monthly diesel price hikes till the elections are over.

Flagging the Kirit Parikh committee’s proposal that subsidy on diesel must not exceed R6/litre, the government has decided not to persist with the monthly diesel price hikes till the elections are over.

The move, reflected in a press statement issued by IOC, the country’s largest oil marketing company, could interrupt the efforts to make price of this key fuel, which accounts for 60% of the fuel subsidy burden, market-determined.

IOC said that its losses on diesel (under-recoveries) currently stand at Rs.5.93/litre, below the subsidy cap of Rs 6/litre recommended by the expert group headed by the former planning commission member. Pertinently, the government hasn’t implemented a set of other proposals by the Parikh group for fuel price reform, including a one-time price hike of Rs 250/cylinder for LPG and that the number of subsidised cylinders be cut to six a year (it’s now 12).

In fact, even the Rs 6/litre maximum subsidy proposed for diesel by Parikh hasn’t been accepted by the government although it was discussed within it, thanks to a petroleum ministry note circulated for the Cabinet to consider. The Cabinet could not take up the note for discussion.

In January 2013, when government allowed the oil marketing companies to increase diesel price in small range every month, the Parikh proposal to limit diesel subsidy was not even submitted.

Parikh submitted his report in October 2013, where he hailed government’s decision to increase diesel price in small doses.

His recommended capping diesel subsidy at Rs 6/litre and said any rise in price beyond this should be passed on to consumers.

Speaking to FE on Tuesday Parikh said, ?I think it is a great mistake (not to increase diesel price). The Election Commission should direct the government to continue with the increase in diesel price.? Parikh said that it has always been difficult to increase fuel prices. The government, he said, should certainly continue with its decision to phase out diesel subsidy.

This is not the first time, government has backtracked on the issue of diesel price deregulation. In June 2010, the government had decided in principle to make the price of diesel market-determined, but could not walk the talk.

?We need to arrive at a political consensus that aligning diesel price with movement in global price is not bad. The argument that it leads to inflation is not true because absence of reform increases the subsidy burden impacting the fiscal situation adversely,? said Arvind Mahajan, partner and head of energy, infrastructure and government at global advisory firm KPMG.

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First published on: 02-04-2014 at 04:47 IST
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