In the single steepest hike in fuel prices, the government on Wednesday raised petrol price by Rs. 5 per litre, diesel by Rs. 3 and LPG by Rs. 50 per cylinder and came under attack from its allies as well as opposition parties.
The government that dithered over the issue till global crude prices touched an all-time high of 135 dollars a barrel, announced the increase in an election year.
While Left parties sought review and announced nationwide protests, the main opposition BJP said it was UPA government's "economic terror" on the common man.
"Congress will have to pay heavily for this," former Petroleum Minister and senior BJP leader Ram Naik said.
Petrol in Delhi will cost Rs. 50.56 a litre after the hike, while diesel prices would go up from Rs. 31.8 to Rs. 34.8 a litre effective midnight from Wednesday night. LPG prices have gone up by Rs. 50 per 14.2-kg cylinder to Rs. 344.75.
"We were left with no option," Petroleum Minister Murli Deora told a packed news conference after a meeting of the Cabinet Committee on Political Affairs (CCPA).
State-run Indian Oil, Bharat Petroleum and Hindustan Petroleum would have suffered a revenue loss of Rs. 245,305 crore this fiscal if the prices had not been hiked and the across-the-board 5 per cent cut in custom duties on crude and petroleum products and a Re one per litre reduction in excise on petrol and diesel were not announced.
"Due to the relentless increase in international oil prices, it has now become necessary for the consumer... To shoulder a small part of the increased burden, through a marginal hike in prices," Deora said.
Petrol and diesel prices were last raised in February. The last steepest hike was Rs. 4 a litre on petrol and Rs. 2 per litre on diesel announced by the UPA Government in September 2006.
The government also announced an across the board 5 per cent cut in customs duties, bringing rates on crude to zero, on petrol and diesel to 2.5 per cent and on other products like ATF and naphtha for non-fertilizer use to 5 per cent.
Besides, excise duty on petrol has been cut by Re one a litre to Rs. 13.45 and on diesel to Rs. 3.60.
Petroleum Secretary M S Srinivasan said the hike in fuel prices would give fuel retailers an additional revenue of Rs. 21,153 crore, while the government will forego Rs. 22,660 crore of revenues by way of duty cuts.
Deora said he has spoken to the Left leaders including Prakash Karat of CPM and Gurudas Dasgupta of CPI informing them of the compulsions behind the hike. "I can't say that they supported (the decision)... But they were understanding."
BJP termed the decision as unleashing of "economic terror" on the nation while Naik said the move that was a result of lack of any policy for the sector, would have cascading effect on inflation.
The government also denied reports of fuel rationing, saying all of the genuine demand is and will be met.
"There is no proposal to restrict supply of domestic LPG per family. Nor there any proposal to restrict fuel supplies at petrol pumps. It is utterly wrong," Srinivasan said. "You can burn as much gas as you need."
The government decided to increase the subsidy payout by upstream firms like ONGC and OIL to Rs. 45,000 crore this fiscal from Rs. 25,708 crore last year. ONGC and OIL give discounts on crude they sell to refiners.
ONGC Chairman and Managing Director R S Sharma said the company's payout would rise to over Rs. 38,000 crore.
Fuel retailers IOC, BPCL and HPCL will absorb Rs. 20,000 crore of the revenue loss on fuel sales this year as against Rs. 16,125 crore last year.
For the remaining uncovered revenue loss of Rs. 135,000 crore, the Finance Ministry will issue oil bonds every quarter based on actual numbers, Srinivasan said.
Petrol and diesel prices were last raised in February when the Indian basket of crude oil was at 67 dollars per barrel. Wednesday's hike takes into account oil prices at 113 dollars per barrel.
Srinivasan said the hike in fuel prices would have an inflationary impact of 0.5-0.6 per cent on general prices.
Deora had proposed a Rs. 10 a litre hike in petrol, Rs. 5 per litre increase in diesel and Rs. 50 per cylinder raise in LPG prices together with drastic duty cuts to ward off bankruptcy of the state-run retailers.
However, the hike on petrol and diesel was moderated to check inflation rate which already is at 45-month high of 8.1 per cent.
Deora said the hike needed to bring domestic prices at par with international cost was Rs. 21.43 a litre on petrol, Rs. 31.58 per litre on diesel, Rs. 352.99 on every 14.2-kg LPG cylinder and Rs. 35.98 per litre on kerosene.
"We have not touched the common man's cooking fuel, kerosene," he said.
Revenue Secretary Bhide said "although there are tremendous demands on the revenue, especially for programmes and schemes in the social sector, it has been decided to make certain duty changes in customs and excise."
IOC Chairman Sarthak Behuria said the package announced on Wednesday addressed the liquidity and profitability issues faced by the retailers.
"The revenue loss due to steep hike in international oil prices had make fuel price hike inevitable," he said.
IOC, BPCL and HPCL were losing Rs. 725 crore per day on fuel sales and had warned of fuel shortages from August when BPCL and HPCL were slated to run out of cash to import crude. IOC had funds to last till September.
Wednesday's decision followed week long meetings the Prime Minister had including four where UPA Chairperson Sonia Gandhi was also present.
The cut in customs duty on crude to zero from 5 per cent would result in a revenue loss of Rs. 15,500 crore to the government, while import duty cut on products would reduce revenues by Rs. 500 crore.
The reduction in excise duty on petrol and diesel would result in a revenue loss of Rs. 6,660 crore.