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The government might go for a one-time increase in the price of diesel to bring down the entire underrecovery of oil marketing companies (OMCs) on this count to zero and raise the rates for subsidised cooking gas, in phases (tranches of Rs 50 each are possible).
The Narendra Modi government is also likely to go for a rise in kerosene oil prices in phases, for the first time since June 2011.
These steps might stoke inflation and dent Modi’s popularity for a while, as he himself had indicated.
OMCs are incurring a combined daily underrecovery of about Rs 249 crore on the sale of diesel, kerosene and cooking gas. This would mean Rs 90,000 crore for the current financial year against Rs 1,39,869 crore the previous year.
The likely move might, as stated earlier, boost inflation further. Wholesale Price Index-based fuel rates rose to 10.53 per cent in May against 8.93 per cent in April. Diesel prices rose 14.21 per cent from 13.74 per cent. However, cooking gas prices rose at 7.11 per cent from 7.50 per cent.
A litre of diesel in Delhi costs Rs 57.28. Every price increase of 50p a litre will lower OMCs’ loss on retail sale of the fuel by Rs 5,000 crore a year. A 14.2-kg cylinder of subsidised LPG costs Rs 414 in Delhi, while the market price is Rs 905. Raising the LPG price by Rs 50 a cylinder will reduce the annual underrecovery by Rs 3,800 crore.
Modi had said on Saturday, “I know my popularity might go down due to hard decisions, people might be annoyed with me, but they will appreciate it later.”
The government is also considering raising rail passenger fares by 10 per cent and freight by 6.5 per cent under the fuel adjustment component. These increases were earlier put on hold, pending the new government’s approval. Passenger fares were revised by up to two per cent under the fuel adjustment component in the higher classes and around 3.5 per cent in the lower classes under the increase done in October 2013. Simultaneously, freight rates were increased by 1.7 per cent under the FAC. The increase in the FAC for freight is additional to the busy season surcharge of 15 per cent announced last week.
While the middle class is hoping for an increase in the threshold of tax exemption from Rs 2 lakh to Rs 3 lakh a year, this might be put on hold for at least the current financial year.
The rollout of the ambitious National Food Security Act, put through by the previous government, might be staggered. Its complete coverage will further widen the food subsidy to Rs 1,30,000 crore as against Rs 90,000 provided for by the 2014-15 interim Budget.
The Act would provide subsidised rice, wheat or coarse cereals to 67 per cent of the population.
