The Hindu : Front Page : Petrol, diesel prices hiked; LPG to cost Rs. 20 more

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Friday, Nov 05, 2004

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Petrol, diesel prices hiked; LPG to cost Rs. 20 more

By Our Special Correspondent

NEW DELHI, NOV. 4. After a three-month gap, the Government today decided to increase the price of petrol by Rs. 2.19 a litre, that of diesel by Rs. 2.12 a litre and cooking gas by Rs. 20 a cylinder but left kerosene prices unchanged. The hikes will be effective midnight tonight but the actual prices will differ from State to State because of local taxes.

The decision to go in for price increases was taken at a meeting of the Cabinet Committee on Economic Affairs here this evening. Announcing the decision to the media, the Minister for Petroleum and Natural Gas, Mani Shankar Aiyar, said petrol prices would be raised to maintain import parity — the cost at which imports are made. As for diesel, the increase will be 50 per cent of the hike necessary to maintain import parity while a cylinder of LPG (liquefied natural gas) will now cost Rs. 20 more with immediate effect. Thereafter, there will be an increase of Rs. 5 per cylinder every month, beginning December. Kerosene prices have been left untouched and it was also decided that there would be no excise or customs duty cuts on petroleum products.

Left advice heeded

In deciding the price hikes, the CCEA kept in mind the suggestions of the Left parties. These parties had agreed that there was a compulsion to raise prices because international crude oil had shot up to over $55 a barrel, but felt that the main increase should be in the case of petrol and less in the case of diesel as that has a cascading effect on the general price level. There was some opposition to any increase in LPG and kerosene prices but the Government was compelled to increase LPG prices moderately because of the huge subsidy involved. Prior to the price hike, there was a subsidy element of over Rs. 158 per LPG cylinder.

Though international oil prices have been rising since May-June this year, the Government allowed the oil companies to raise prices moderately in June and followed it up by excise and customs duty cuts in August. Since then, international crude prices have been galloping, but the oil companies were restrained from passing on the burden to the domestic consumer.

Before going in for the hike, the Government undertook a lengthy process of consultations, particularly with the Left parties.

The Government was also constrained by the fact that inflation had increased in the post-June period, forcing it to carefully consider the impact of increased fuel prices on the general price line.

A further cut in excise and customs duties was also difficult since the August reductions caused a revenue loss of Rs. 5,000 crores.

Under-recoveries

On the other hand, the restraint on the oil companies had resulted in under-recoveries of Rs. 10,000 crores between January and June this year when domestic petroleum prices were kept static by the Vajpayee Government and another denial of price increase would have resulted in the under-recoveries shooting up to Rs. 20,000 crores in a full year.

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