In a mix of populist and reform measures, government today raised the cap on supply of subsidised cooking gas (LPG) to nine cylinders per household from six and virtually deregulated diesel prices allowing "small" hikes over a period of time.
Diesel prices in all probability may be hiked by Rs. 1.50-2.0 per litre in the first instance that can be as early as tonight following the decision taken by the Cabinet Committee on Political Affairs (CCPA) headed by Prime Minister Manmohan Singh.
The CCPA however left LPG and kerosene prices unchanged.
"The CCPA considered the issue of raising the cap from six to nine and the CCPA has agreed and raised the cap from six cylinders (per household in a year) to nine," Oil Minister M Veerappa Moily told reporters here.
"As far as diesel is concerned, oil marketing companies have been authorised to make price correction from time to time," he said. "It (price correction) can commence even from today."
However, Finance Minister P Chidambaram maintained that the oil companies have been allowed to make "small correction ... I am looking at same subsidy bill as was expected earlier".
Administered diesel price has always been a sensitive issue with the fuel being consumed in large measure by public transport and freight carriers. It is always feared that any hike in its rates can lead to a cascading effect on prices.
Price of diesel was last revised on September 14 when it was hiked by a steep Rs. 5.63 per litre. At present, diesel costs Rs. 47.15 per litre in Delhi.
Subsidised LPG costs Rs. 410.50 per 14.2-kg cylinder and any household requirement beyond the new limit of 9 cylinders will cost a near market price of Rs. 895.50 per bottle. MORE
The government had in September capped the supply of subsidised cooking gas to six cylinders per household in a year, with a view to checking diversion to unintended beneficiaries.
However the decision met with widespread protests as only 44 per cent of population used six or less cylinders in a year.
With today’s decision, consumers will get five subsidised cylinders instead of the previously mandated three in the period up to March 31, 2013. From April 1, 2013 they will get nine cylinders in a year.
Moily said there will be no change in price of LPG and kerosene.
The increase in the LPG cap would mean an additional subsidy outgo of Rs. 9,300 crore annually.
On diesel front, sources said the government has kept the quantum of hike and the timing a secret to avoid petrol pumps stopping sales to make quick profits.
Oil Secretary G C Chaturvedi said CCPA has authorised oil firms to make "small changes over a period of time".
"There was no discussion on the quantum of price increase or the period over which these changes are to be effected. It has been left to the oil companies," he said.
He, however emphatically stated that the government had not deregulated diesel prices. "If we are to deregulate, then diesel price will have to be raised by Rs. 9.60 per litre, which is not the case. Only a small quantum of change has been permitted over a period of time."
Asked if it was partial deregulation, he said "it wasn’t even partial deregulation."
The government, he said, will continue to subsidise diesel, cooking gas and kerosene.
"The finance ministry will meet all of the under recoveries (loss)," he said.
State-owned oil companies sell diesel at a loss of Rs. 9.60 per litre, kerosene at Rs. 30.64 a litre and LPG at Rs. 490.50 per 14.2-kg cylinder.
For the full 2012-13 fiscal, they are projected to lose about Rs. 165,000 crore.
'No objection to govt's proposal'
The Election Commission has granted no objection to the government's proposal for an increase in the cap of subsidised LPG cylinders from six to nine in a year.
The decision was taken at a full commission meeting held on Thursday under the chairmanship of Chief Election Commissioner VS Sampath, and communicated to the Union Cabinet, which met to take a call on the matter.
The government had on Wednesday written to the Commission, seeking its view on the issue of raising the cap on LPG cylinders since the Model Code of Conduct is in operation in Nagaland, Meghalaya and Tripura which are going to polls next month.
During the last phase of elections in Gujarat in December, the Commission had taken a serious note of the government's announcement regarding a possible raise in the number of subsidised LPG cylinders each family can have in a year.
The poll body had then asked the government against making any such announcement in future without its approval when the model code is in operation.