Government weighing hike in diesel, LPG and kerosene rates

The government is considering an across-the-board hike in the prices of the now subsidised fuels, including diesel, kerosene and cooking gas (LPG), so as to deregulate their prices over the medium term.

The move is in line with the recommendations by the Vijay Kelkar Committee for an immediate hike in fuel prices to reduce the government's subsidy bill and a subsequent reduction in the government's fiscal deficit.

The Kelkar Committee, appointed by finance ministry to suggest a roadmap for fiscal consolidation, has suggested immediate hike in the prices of fuels, including that of kerosene and domestic cooking gas (LPG) and complete deregulation of diesel prices by 2013-14 fiscal.

Petroleum minister M Veerappa Moily, however, said the recommendations are still at the proposal stage and that the ministry is yet to take a decision.

Meanwhile, the petroleum ministry has asked the finance ministry to change the formula for calculating losses of OMCs.  The petroleum ministry wants the finance ministry to pay Rs1,00,000 crore, with upstream oil companies such as ONGC, OIL and OMCs sharing the rest of the subsidy burden.

This could help reduce the government's subsidy burden while also reducing under recoveries of oil marketing companies in fuel sales.

The ministry is hopeful of a lower fuel subsidy bill, if the methodology is changed and a decision in this regard is likely in the next two weeks.

Under the existing trade parity price method, OMCs, including Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp, are expected to report a notional loss of about Rs1,63,000 crore this fiscal financial year.