The Kirit Parikh Committee has favoured continuing the existing pricing principles for controlled petroleum products with the counsel that their prices be made market determined in 2-3 years.
The expert group suggested that trade parity pricing formula for diesel be retained with an increase in its retail price by Rs 4 per litre “immediately” and the remaining subsidy recovered from consumers through a monthly price hike of Re 1 per litre.
The existing trade parity pricing, it recommended, be continued until diesel price is market based. “The import to export parity ratio (in the trade parity) may be reviewed and revised on annual basis based on the actual export ratio of diesel by the Indian refineries, excluding exports by refineries in the special economic zones,” it said.
The finance ministry has been demanding that diesel pricing be changed to export parity from the existing trade parity, where the 2.5 per cent customs duty is added on to 80 per cent of the sales volume and charged from customers even though it is not paid to the government.
Under export parity, the customs duty would not be charged on the entire volume thus bringing down the under-recovery calculations by state-run oil marketing companies.
The panel has also declined finance ministry’s demand for doing away with import parity pricing of kerosene and LPG.
“Government should take steps to partially pass on the impact to consumers and move towards making the price of diesel market-determined immediately and of PDS kerosene and domestic LPG in a timeframe of about three years,” it said.
Using this as the basis, the expert group recommended that price of PDS kerosene be increased by “at least Rs 2 per litre now and another Rs 2 per litre from April 2014 and thereafter revise its price in line with the growth in per capita agriculture GDP”.
As for domestic cooking gas, the group’s prescription is that, “One-fourth of the current subsidy, amounting to Rs 100 per cylinder, should be passed on by increase the price of subsidised domestic LPG before March 2014 and the balance passed on at the rate of 25 per cent in each year during the next three years. Thereafter, the price of domestic LPG should be decontrolled,” it said.
It also prescribed that the limit of subsidised cylinders be reduced from nine to six and restricted to families below the poverty line through the Aadhar-based direct benefits transfer scheme.
Trade parity pricing formula