Early oil price hike likely

Current oil prices unsustainable: Chidambaram.

The much-talked-about hike in oil prices is expected to happen soon, with various members of the government supporting the view that the current price level was unsustainable and harming oil companies. A relook at the duty structure in the oil sector was also in the offing, they indicated.

"The government is fully aware that the situation is not sustainable if domestic oil prices are not aligned with world prices," said Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Yesterday, Finance Minister P Chidambaram had also said there was no alternative except to raise the prices of petroleum products.

Speaking to reporters in Tamil Nadu, he said the oil companies would incur a loss of Rs 30,000 to Rs 40,000 crore during this fiscal if the present trend of spiralling crude oil prices continued for some more months.

The price of the Indian basket of crude has risen from $40 a barrel in August 2004 to almost $60 a barrel in August 2005. Ahluwalia said "We will not leave this unattended." "There is a case for subsidising targeted consumers and for passing on the price increase to the rest. However, the situation in India is complicated by the fact that the sector has very high levels of taxation," Ahluwalia said while speaking at a function organised by the American Chamber of Commerce in India.

The decision not to hike prices last year was to be seen in the context that until six months ago, many international experts, including the World Bank and International Monetary Fund had taken the view that the spike in oil prices was temporary, he said.

As the world adjusted to the view that prices would remain high, domestic prices would have to be increased.