Faced with a huge fiscal deficit and rising costs of social security programmes, the United Progressive Alliance-II government could announce possible decontrol of petrol and diesel prices in the Union budget to be presented by Finance Minister Pranab Mukherjee on February 26.
This could provide the road map for partial deregulation of the petroleum sector and help it cut down on subsidies. Official sources in the Petroleum Ministry said both Mr. Mukherjee and the Petroleum and Natural Gas Minister Murli Deora discussed such a road map that could ultimately provide an alternative to the oil marketing companies (OMCs) to review the prices of petrol and diesel on a regular basis.
“There is a strong view in the Ministries, that notwithstanding the opposition within the UPA, it is high time that petrol and diesel 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,” the sources said.
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Mr. Mukherjee is learnt to have told Mr. Deora that it would not be possible to provide huge subsidies to the OMCs in future, especially in view of the commitment of the UPA regime to flagship social security programmes that require huge allocations. “The Finance Ministry is in favour of decontrolling auto fuel prices to limit the government's subsidy. A decision is expected to be announced shortly, but most likely will find mention in the Budget,” the sources said.
The two sides discussed a proposal 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.