The committee further suggested that any rise in the gap between domestic and international prices beyond Rs. 6/litre should be made up by corresponding increase in the price of Diesel in the domestic market by the OMCs. If the gap falls below Rs. 6/litre, either the prices should be reduced or the subsidy to be provided should be reduced. The second option recommended by the Expert Group would lead to decline in subsidy over time. In the future, oil companies should be permitted to revise the prices above the subsidy cap (in line with the changes in the international prices and other costs elements) on their own.
The expert group recommended that the fixed subsidy of Rs. 6/litre be reduced gradually and finally removed through regular monthly downward revisions in the cap on subsidy and corresponding increase in the price of diesel over the next one year.
In case of domestic LPG the Expert Group recommended that the limit for subsidized cylinders be reduced from the present 9 to 6 cylinders per annum to each household and the DBTL scheme be restricted to identified families based on an exclusion criteria. The DBTL scheme be implemented throughout the country for Direct Transfer of Subsidy to identified families within next one year. Further, the price of subsidized domestic LPG be raised by Rs. 250/cylinder immediately and the balance subsidy be phased out over the next 2 years through gradual price increase. Piped natural gas to homes be actively promoted in urban areas. The group said that as the country continues to be heavily dependent on imports of LPG, the methodology of fixing refinery gate price of Domestic LPG should continue on IPP basis.
The expert group suggested that PDS kerosene is priced at full market price and the benefit of the subsidy to the deserving consumers i.e. BPL families, is given through direct cash transfer mechanism. For this purpose, the DBTK scheme for Direct Transfer of Subsidy to BPL families throughout the country should be fast-tracked and completed within the next two years and till this is implemented the expert group recommended that the price of PDS Kerosene be increased by Rs. 4/Litre immediately and thereafter the price of PDS Kerosene be revised from time to time at least in line with growth in the per capita agriculture GDP. Allocation of PDS Kerosene should be reduced with spread of rural electrification and increased use of LPG and PNG for cooking. Since Kerosene is neither exported nor imported and also since there is no custom duty on PDS Kerosene, it's pricing may continue to be based on IPP.
The expert group also recommended that OMCs be given the freedom to procure crude oil and petroleum products through a mix of long terms contracts and spot purchases from all available sources. This can be accomplished without compromising transparency and accountability by working out mechanisms in consultation with the CVC.
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