Petroleum ministry officials are understood to have told the Prime Ministers Office (PMO) here on Thursday that an increase in the prices of petroleum products is inevitable if the ballooning oil pool account deficit is to be checked. The oil pool account deficit has crossed Rs 10,000 crore.
The officials are said to have told an emergency meeting convened by the PMO that in case the oil pool account deficit is allowed to go unchecked, it would be difficult for oil companies to muster resources for continuing their operations.
The ministry plans to seek the support of the Planning Commission for the price hike during their meeting next week.
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The ministry is said to be in favour of raising the prices of both kerosene and diesel which have so far been kept highly subsidised.
Officials say the benefits of the low price of kerosene are not reaching the poorer sections and that subsidised kerosene is being increasingly used for adulterating diesel.
They say that instead of transportation purposes, diesel is being used for generating electricity in industrial townships.
Kerosene subsidy has risen sharply over the years. While it was Rs 3,740 crore in 1994-95, it rose to Rs 4,190 crore in 1995-96 and is expected to touch Rs 4,870 crore this year.
Similarly, subsidy on diesel, which was Rs 430 crore in 1994-95, jumped to Rs 2,180 crore in 1995-96 and is expected to cross Rs 2,500 crore in 1996-97.
Alhough the Prime Ministers Office is said to be in full agreement with the ministry on lifting the price of petroleum, some constituents of the United Front government are opposed to a second hike in six months.
While Prime Minister H D Deve Gowda has been informally consulting Left leaders and the DMK on the issue, he has not been able to bring them around to his view point. The developments in the Congress and their possible impact on the survival of the United Front government at the Centre has added to the uncertainty surrounding the hike.