Sujay Mehdudia

State Governments not interested in dual pricing

  • Budget provides for Rs.2,650 crore subsidy
  • A section of officials was in favour of ending subsidy

    NEW DELHI: Ending speculation on introduction of a "dual pricing regime" for distribution of liquefied petroleum gas (LPG) and kerosene, Finance Minister P. Chidambaram on Wednesday extended the subsidy for both for an indefinite period.

    Presenting the budget, he proposed a reduction in ad-valorem excise duty rates on petrol and diesel to six per cent from eight per cent to provide relief to oil companies reeling under high international oil prices.

    The budget provides for Rs.2,650 crore for subsiding LPG and kerosene at the rate of Rs. 22.58 per 14.2 kg domestic LPG cylinder and Rs.0.82 per litre of kerosene sold through the public distribution system (PDS).

    Minister of State in PMO Prthiviraj Chauhan recently mooted the idea of putting in place a "dual pricing" system for LPG distribution to put an end to the misuse of domestic LPG for commercial purposes.

    A section of officials in the Petroleum and Natural Gas Ministry was in favour of phasing out the subsidy on LPG and kerosene and limiting it only to the Below Poverty Line cardholders. They also mooted a smart card scheme for distribution of the two products under the new regime. However, the scheme did not find favour with the State Governments and is still stuck in the trial stages.

    Petroleum and Natural Gas Minister Murli Deora had written to Prime Minister Manmohan Singh and Mr. Chidambaram, seeking extension of the LPG and kerosene subsidy, set to expire on March 31 as per the five-year phase-out plan.

    Responding to Mr. Deora's request, Mr. Chidambaram extended the subsidy regime by providing an amount almost equal to that given in 2006-07. Despite the subsidy, the loss on sale of LPG would stand at Rs.171 a cylinder and that on kerosene at Rs.12.73 a litre.

    The total loss of revenue for not increasing LPG and kerosene prices in line with the rise in cost of production was Rs.27,500 crore in 2006-07. Against this, the budgetary subsidy was pegged at Rs. 2,900 crore. The remaining is to be met through contribution from upstream companies such as Oil and Natural Gas Corporation and issue of oil bonds.

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