The Kirit Parikh Committee on fuel pricing Wednesday recommended an immediate increase in diesel price by Rs.5 a litre to offset the loss incurred by state oil marketing companies (OMCs) in selling the fuel below cost.
The committee suggested that the balance loss should be met through a fixed subsidy on diesel of Rs.6 per litre to the OMCs.
The panel has also suggested increasing kerosene price by Rs.4 a litre, and a cap on subsidised domestic LPG to be restricted for each household to six cylinders per year.
"The limit for subsidised cylinders should be reduced from the present 9 to 6 cylinders per annum to each household," the report said.
The panel was constituted to recommend a pricing methodology for diesel, domestic LPG and kerosene sale through the public distribution system.
After examining various alternative pricing mechanisms, the expert group noted that there is no single or unique formula which can be said to represent the correct method for fixing domestic refinery gate prices in India.
"Therefore, instead of replacing the existing well established pricing mechanism by some other arbitrary and ad hoc pricing mechanism, the group has recommended that the best course of action is to free the market from price controls at the earliest," the report said
In its draft report, the panel said that until diesel pricing was made market-determined, the existing pricing mechanism based on trade parity - 80 percent of import parity price and 20 percent of export parity price - should continue.
It felt that changing the existing pricing formula would not solve the problem of increasing losses, because of high international crude prices and rupee depreciation.
The finance ministry, instead, is in favour of refiners being paid the equivalent of rates they would have realised if diesel, kerosene and LPG were exported.
OMCs have said that export parity pricing was not viable for their refineries. They have been allowed by the government to increase diesel prices by 45-50 paise a litre every month.
The total subsidy for selling diesel, kerosene and LPG below cost has touched Rs.130,000 crore in the current fiscal, with the falling rupee making imports dearer.
