After the draconian hike in railway fares, the government is likely to raise the prices of domestic cooking gas (LPG) by as much as Rs5 a month per cylinder across the board, while kerosene prices will be raised by up to Re1 a litre a month, to cut down the Rs80,000 crore annual subsidy the union government pays on the two fuels.
This is a strong follow-up on the move by the previous UPA government in January 2013 to allow India's state-controlled oil marketing companies raise diesel retail prices by up to 50 paise per litre every month.
Following the diesel model, the oil ministry is now proposing monthly increases in LPG and kerosene rates, according to several reports.
The subsidy on LPG (liquefied petroleum gas) is currently Rs432.71 per 14.2-kg cylinder; and a Rs5 per month price increase will still take seven years to wipe out the subsidy.
Sources said the ministry is of the view that the monthly increases can be as high as Rs. 10 if the political leadership takes a stand.
On kerosene, the subsidy currently is Rs32.87 per litre, and at Re1 monthly hike it would take more than 36 months to wipe out the subsidy.
In 2013-14, the government paid Rs70,772 crore in cash subsidy to oil marketing companies, while upstream producers like Oil & Natural Gas Corp (ONGC) and Oil India Ltd – again state-owned – were made to pay Rs67,021 crore. In the previous year, the government burden was Rs100,000 crore and the upstream contribution Rs60,000 crore.
The decision to raise LPG prices comes amidst high-level meetings being held over gas pricing. After Prime Minister Narendra Modi held a meeting on Sunday on the issue, his principal secretary Nripendra Misra chaired a second meeting on the issue today.
The petroleum ministry is working on a new cabinet note for gas prices. The principal secretaries to the PM and the finance minister are reviewing the much-debated Rangarajan gas price formula. A decision on gas pricing is expected soon.