Ending all speculations of a rollback in petrol price, the government on Friday said it would watch the situation for a few days before taking any decision. Petroleum Minister Jaipal Reddy said the government wants to work out a mechanism of lowering petrol prices in consultation with the states. He said his ministry had sought a meeting of empowered group of ministers (EGoM) on fuel for discussing the situation in diesel, kerosene and LPG, but no date had been decided.
“I have spoken to Finance Minister Pranab Mukherjee. We both have decided to consult the state governments on petrol. State governments have to sacrifice something, centre needs to sacrifice something,” Reddy told reporters.
States charge VAT on petrol that is levied on an ad-valorem basis. So, with every price hike a cascading impact comes in the form of higher VAT. For instance, when the oil companies raised prices by Rs 6.28 a litre earlier this week, the actual increase was well over Rs 7.50. Most states levy VAT in the range of 20-30 per cent. In absolute terms, the current VAT on petrol in West Bengal is Rs 16.08 a litre and Rs 14.78 in Tamil Nadu. In contrast, the central government levies a specific excise duty of Rs 14.78 a litre.
On political opposition to price hike from various parties, including the Congress, Reddy said, “The Congress is a political party and like all parties, it doesn’t want to advocate unpopular causes even if they are unequivocal causes.”
While the current trend points to a marginal drop when prices come up for review next fortnight, Reddy said, “I will take a view on what the trend is likely to be. I want to have a feel (of lower oil prices first),” Reddy said. “The rupee has depreciated steeply. We don’t know when the depreciation will stop. Therefore, I would like to watch (for sometime).”
The government oil marketing companies—IndianOil, Bharat Petroleum and Hindustan Petroleum—did not revise petrol prices over the past six months though it is a deregulated product. Consequently, they lost Rs 4,890 crore during the last fiscal and another Rs 2,330 crore in the current fiscal. “These amounts have not been compensated by the government. The finance ministry has its own macro limitations. Our oil companies are bleeding,” he said.
The government granted the oil companies a cash compensation of Rs 83,500 crore for losses on diesel, kerosene and LPG during last fiscal. Reddy said prices of the three controlled products can only be decided by the EGoM. The last hike in these three products was taken in June last year. Ever since, the revenue loss on diesel has jumped from Rs 6.13 to Rs 13.64 a litre, on kerosene from Rs 24.16 to Rs 31.41 a litre and on LPG from Rs 331.13 to Rs 479 a cylinder.