The prices of domestic liquefied petroleum gas (LPG) and kerosene sold through the public distribution system (PDS) will be increased from April 1.
Though a decision to this effect was taken during the recent meeting between finance minister Yashwant Sinha and petroleum minister Ram Naik, it was not made public in view of the forthcoming Uttar Pradesh Assembly elections.
The two ministers were of the view that since on April 1, the administered pricing mechanism (APM) in the petroleum sector will be dismantled and the all-important elections to the Uttar Pradesh Assembly will be over, it will be the most opportune time to bring down the subsidies on the two products by increasing their prices. However, the subsidy may not be brought down to 33 per cent and 15 per cent for PDS kerosene and domestic LPG, respectively, as approved by the Cabinet in 1997, as this would involve a hefty increase in the prices of the two politically sensitive products.
Petroleum ministry sources say it is difficult to quantify the increase in the prices since it will depend upon the international price of crude prevailing at that time and the value of the rupee vis-a-vis the US dollar.
However, the hike is expected to be bearable as the international prices of crude oil are expected to remain low for some time, the sources said. From April 1, the subsidy on petroleum products is scheduled to be absorbed by the Union Budget.
At the existing retail prices and tariff rates, the annual subsidy, at an average international crude oil price of $ 25 a barrel and an exchange rate of Rs 48 per dollar, is estimated to be around Rs 6,630 crore for PDS kerosene and Rs 6,690 crore for domestic LPG.
Other parameters remaining the same, the estimated annual subsidy at an average international crude price of $ 20 a barrel would be Rs 4,230 crore for PDS kerosene and Rs 4,490 crore for domestic LPG.
