The decision of the Union Cabinet to hike urea prices and decontrol prices of other fertilizers could well have set in motion the process for unleashing a mechanism for total decontrol of petrol prices and partial hike in diesel prices along with an imminent hike in the cost of Liquefied Petroleum Gas (LPG) cylinder and kerosene. Following the rising fiscal deficit and increasing money requirement for flagship programmes of the United Progressive Alliance (UPA) regime, the Finance Minister, Pranab Mukherjee has already expressed his reluctance to allocate additional funds for oil bonds apart from the Rs. 12, 000 crore already issued meaning the Union budget could well lay down the roadmap for dismantling of the Administered Price Mechanism (APM) regime.
Riding on the back of Kirit Parikh Committee recommendations seeking total decontrol of petrol and diesel prices and gradual increase in price of LPG and kerosene, the loss making oil marketing companies (OMCs) are pressing for decontrol of petrol and diesel and their demand being backed by the Petroleum and Natural Gas Ministry, fuel price hike could well be on the way along with partial decontrol.
The industry, which has been pushing for decontrol, would be keenly watching as to how much does the Finance Minister allocate for fuel subsidy which could well give an indication of the possible hike. Experts feel that the Minister could reduce some taxes on petroleum products and then undertake a hike to minimise the impact on the common man.
However, the government would have to take into consideration the opposition of its allies like Trinamool Congress and the DMK which had voiced their concern over the urea price hike as well as decontrol of fertilizer pricing. The Congress, on the other hand, has already hinted at people should brace up for the hike. The OMCs are projected to lose Rs. 45,571 crore this fiscal on sale of petrol, diesel, LPG and kerosene. The Petroleum Ministry has already conveyed to the government that it was prepared for a rupee one hike in diesel prices and Rs. 3 increase for petrol. As for the cooking gas, the Ministry is in favour of a hike of Rs. 25 a cylinder and a Rs. 2 per litre hike in kerosene. If the Parikh Committee suggestions are accepted, petrol prices will immediately go up by Rs. 4.63 a litre and diesel by Rs. 1.89, LPG by Rs. 100 and kerosene by Rs. 6 per litre.
However, experts are of the view that notwithstanding the opposition within the UPA, it is high time that petrol and diesel prices are totally decontrolled and left to market forces to decide the ups and downs in their price movement. LPG and kerosene could continue to be administered by the government. Mr. Mukherjee along with Finance Ministry officials are very clear that it would not be possible to provide huge subsidies to the OMCs in future. A proposal has been floated to put in place a regime that would allow the OMCs to review or revisit petrol and diesel prices every 30 days based on average international price of the last one month. It was felt that the current low international crude oil prices provided the best opportunity to usher in reforms without consumers feeling the pinch. As such, it was pointed out that motor vehicles were the biggest consumers of diesel, at 12 to 14 per cent, compared to the agriculture sector, at 10 per cent.
Experts are of the view that the Kirit Parikh Committee report is very timely and when the crude oil prices are moderate, it is the best opportunity to implement the reforms in petroleum sector. The private sector players have also been pitching for level playing field arguing that due to subsidies to the OMCs they have been forced to shut down their retail outlets selling petrol and diesel in the recent years. The private sector feels that shackles in the petroleum sector have also created obstacles in the path of attracting massive investments in the oil and gas sector and this anomaly needs to be addressed in this budget.
It is common knowledge that the LPG cylinders designated for household use often got diverted for automobile or commercial use resulting in safety hazards. The faulted policy of giving kerosene at subsidised prices under the PDS to all consumers regardless of their economic status has often resulted in wastage, leakage, adulteration and inefficiency.