Government to hike diesel, power prices as fiscal deficit bites

The ministry of petroleum and natural gas has sought an increase of Rs10 per litre in the price of diesel over a 10-month period and that of kerosene over the next two years.

Addressing the National Development Council (NDC) meeting in New Delhi today, Prime Minister Manmohan Singh also gave a strong indication that the government is planning an increase in electricity rates as well.

''Our coal, petroleum products and natural gas are all priced well below international prices. This also means that electricity is effectively underpriced, especially for some consumers. Immediate adjustment of prices to close the gap is not feasible, I realise this, but some phased price adjustment is necessary,'' he said.

For a government faced with rising fiscal deficit, the subsidy burden on account of selling diesel and kerosene below cost is too much of a burden. The government is faced with an unprecedented Rs160,000 crore deficit this fiscal on selling diesel, cooking gas (LPG) and kerosene below their production costs.

The government had, on 14 September 2012, raised the price of diesel by Rs5.63 to Rs47.15 per litre in Delhi, and has since been making a case for further hike in view of the still-high international prices of crude petroleum.

Government also increased prices of domestic cooking gas (LPG) to some extend but left Kerosene prices at last year's level of Rs14.79 per litre (in Delhi).