Expect petrol and diesel prices to go up steadily as the government has decided to steadily chip away at subsidies. One big dose of a fuel price hike is likely to come soon.
In what could imply frequent price hikes of petrol and diesel starting in the next financial year, finance minister P Chidmbaram is expected to unveil details of a blueprint to completely abolish subsidies on auto fuels in the Union budget 2013-14 scheduled next month.
After deregulation of petrol prices, Chidambaram is on course to decontrol diesel prices as well. But, the call ultimately will have to be taken by the Congress in an election year.
In addition, the finance ministry has laid out a roadmap for a phased reduction of subsidy on kitchen fuels - LPG (cooking gas) and kerosene, details of which are also likely to be spelled out as part of the budget proposals.
Plans are afoot to reduce the fuel subsidy outgo to one-third on kerosene and by half on LPG by 2014-15, senior government officials said.
Officials also said that there is a strong possibility of another diesel price hike shortly of anywhere between Rs. 2-3 a litre, depending on global prices.
The hike may come close to the budget and keeping in mind the timing of the state assembly elections in Karnataka, they said.
Although the government compensates state-run oil companies for subsidising diesel, the losses are still working out to be over Rs. 10 on every litre of fuel sold.
Asked to comment, a finance ministry official said the government has identified "wasteful expenditure" that need to be addressed.
"In line with the Kelkar Committee report, the government needs to bring down the subsidy bill at the earliest to get back on fiscal track. Reviewing fuel subsidy is the government's prime objective because the other subsidies - for fertilisers and food -- will be untouched," a senior finance ministry official told HT.
State-owned oil marketing companies -- Indian Oil, Hindustan Petroleum and Bharat Petroleum ---- have projected huge underrecoveries on petrol, LPG and kerosene below the cost price at Rs. 411 crore a day.