Diesel, kerosene and cooking gas prices could be raised soon while the government might separately take up a proposal to raise the cap on supply of subsidised LPG cylinders.
The government may take a look at raising the cap on supply of subsidised LPG cylinders to 9 per household in a year from current limit of six along with the Vijay Kelkar Committee recommendations to deregulate diesel prices by next year along with steep hike in cooking fuel rates.
The Kelkar Committee, which was appointed by the finance ministry to suggest a road map for fiscal consolidation, had recommended an immediate hike in price of diesel by Rs 4 per litre, of kerosene by Rs 2 a litre and of LPG by Rs 50 per cylinder.
“That (Vijay Kelkar committee recommendation on deregulating diesel and raising kerosene and LPG rates) is a proposal. It is still at proposal stage. The (petroleum) ministry is only processing that report and we are yet to take a decision,” Oil Minister M Veerappa Moily told reporters here.
Though the minister did not indicate a price hike soon, officials speaking on condition of anonymity said a proposal based on Kelkar Committee recommendations will be taken to the Cabinet soon and rates will go up if it is approved.
The price of diesel, which currently costs Rs 47.15 per litre in Delhi, was last revised on September 14 when it was hiked by a steep Rs 5.63 per litre. Kerosene rates have not changed since June 2011 and it currently costs Rs 14.79 per litre in Delhi.
State-owned oil companies currently sell diesel at a loss of Rs 10.16 per litre, kerosene at Rs 32.17 a litre and LPG at Rs 490.50 per 14.2-kg cylinder.
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The rise in supply of subsidised cylinders would lead to an additional Rs 9,000 crore of subsidy payout over and above the Rs 155,313 crore that the government is currently having to deal with on sale of diesel, LPG and kerosene at below market price.
Since the finance ministry is unwilling to foot this, the only option left is to raise fuel prices, officials said.
“By the year 2014-15, the fiscal benefit of the price increase will consist of a first order reduction in expenditure on subsidies, and a second order effect from the enhanced profits of upstream oil marketing companies,” the committee stated, noting that subsidy on diesel had been a major contributor to fiscal slippage in recent years.
Although diesel prices have been deregulated in principle, prices are still being administered by the government. “At this stage, even if the diesel prices are not fully deregulated there is an urgent need for an immediate price increase. The price adjustment should be done in small successive steps and the government should move to complete deregulation of diesel as early as possible,” it stated.
It wanted half of the over Rs 10 per litre loss on diesel sales to be eliminated in the current year and the remaining in the next financial year. On LPG, it wanted cutting of current losses by a quarter this year and the rest over the next two years. For kerosene, it recommended reduction in subsidy of one-third by 2014-15.
Subsidised LPG costs Rs 410.50 per 14.2-kg cylinder and any household requirement beyond current cap of six cylinders is to be bought at near market price of Rs 895.50 per cylinder.
Officials said state-owned Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp together in the first six months of current financial year lost Rs 85,586 crore on selling diesel, domestic LPG and kerosene at government-controlled rates, way below their cost. Of this, Rs 52,711 crore was on account of losses on diesel.