After much deliberation, the Centre on Friday announced an across-the-board fuel price hike — petrol by Rs. 3.50 a litre, diesel by Rs. 2 a litre, kerosene by Rs. 3 a litre and liquefied petroleum gas-LPG (cooking gas) by Rs. 35 a cylinder. The move will help the government cut its deficit and generate funds for social schemes but will also push inflation up.
Effective from Friday midnight, the government has decided to completely deregulate petrol, which will now be linked to international crude prices. However, in the case of diesel, it has gone for partial deregulation and total decontrol will happen in the coming months.
The Empowered Group of Ministers (E-GoM), headed by Union Finance Minister Pranab Mukherjee, cleared the hike, which is based on the recommendations of the Centre-appointed expert group, headed by Dr. Kirit Parikh.
Defending the increase, Union Minister of Petroleum and Natural Gas Murli Deora said: “The government has decided to deregulate fuel prices in view of high under-recoveries being made by oil marketing companies, which is also hurting the government as it has to fund the subsidy portion. However, the government will intervene in case of high volatility in the international crude prices…we are there to safeguard the interest of consumers.”
The Minister said the UPA's two important partners – DMK and NCP – supported the hike, but he did not comment on the opposition by Trinamool Congress leader and Railway Minister Mamata Banerjee, who stayed away from the meeting. “The important thing is that the government will continue to subsidise the common man's cooking fuels, LPG and kerosene.”
Petroleum Secretary S. Sundareshan said: “Market-determined pricing of petrol and diesel is expected to do away with the OMCs' under-recoveries on these two products, which are projected to be around Rs. 22,000 crore during the remaining part of the current fiscal.”
He also said that at current international prices, the OMCs were incurring an under-recovery of Rs.17.92 a litre on PDS kerosene and Rs. 261.90 an LPG cylinder. Even after the hike, the government and the OMCs were expected to bear an under-recovery burden of about Rs. 53,000 crore during 2010-11.