The Kirit Parikh Committee recommendations on reforms in petroleum products pricing are well though-out and forward-looking but their implementation would be a huge political challenge to the government, says global rating agency ICRA.
In a statement here, ICRA said that in view of high under recoveries on diesel the committee had recommended an immediate increase in retail price by Rs.5 a litre and a subsidy cap at Rs. 6 a litre. Any widening of the gap between domestic and international prices beyond Rs. 6 should be made up with a corresponding increase in retail prices.
Regular increase in retail price
Further, the committee said the subsidy should be reduced over time with a regular increase in retail price.
“ICRA believes that while the recommendation of a one-time hike in the price… is prudent, it may be politically challenging to implement given the inflationary impact of diesel price hike. Additionally, with several States in the midst of elections and the general elections just a few months away, a large diesel price hike may not be politically palatable,’’ the statement said.
Kerosene hike too recommended
On PDS kerosene, it said the committee had recommended an immediate price hike of Rs.4 a litre and price revision from time to time at least in line with the growth in per capita agriculture GDP.
With the direct benefit transfer (DBT) scheme to be fully implemented over the next two years, the price could be made comparable to diesel and Below the Poverty Line families could be compensated through the direct cash transfer mechanism.
Balance subsidy phase-out
Similarly, it recommended an immediate increase of Rs. 250 a cylinder for domestic LPG and that the balance subsidy be phased out over the next two years through gradual price increase; implementation of the DBT scheme throughout the country for transfer of subsidy to identified families; and reducing the number of subsidised cylinders from nine to six per family.
Shifting subsidy burden
“ICRA believes that the one-time increase in prices of kerosene and LPG recommended may not be politically feasible. However, it felt [that] with the implementation of direct transfer of subsidies, the OMCs [oil marketing companies] would be able to sell LPG and kerosene at market prices to consumers who would get direct cash compensation from the government, thereby shifting the burden of subsidies to the government.”
