Industry chamber Assocham has asked the Ministry of Petroleum and Natural Gas to completely decontrol pricing of petrol while eliminating subsidies on diesel in a phased manner to reduce the losses of oil firms.
"The government should consider phased elimination of subsidy on diesel to help oil companies stop bleeding. These firms are expected to suffer losses worth Rs 1 lakh crore in 2010-11 due to continued extension of subsidies on petrol, diesel, LPG and kerosene," the chamber said.
Currently, petrol is sold at Rs 6 a litre below its actual price, while diesel pricing is subsidised by over Rs 7 per litre. There is also a subsidy of about Rs 300 per cylinder on LPG and over Rs 30 a litre on kerosene, it said.
"The subsidy on these commodities would cost oil companies a burden of over Rs 30,000 crore in the current fiscal," Assocham said.
"Therefore, there is a need that the government should free petrol pricing. This would provide the downstream oil sector a relief of about Rs 13,000 crore," Assocham said.
It has also proposed that LPG and kerosene pricing should not be controlled by the government. It would not be difficult for people to afford the prices fixed by these firms, as the income levels of people are rising.
It, however, said the ministry should continue with the subsidy on kerosene and LPG for people living below the poverty line.
The chamber said oil companies, which once upon a time were paying a rich dividend to the government and other stakeholders, are now in the red.
Due to subsidies, these companies have started bleeding and their margins are under serious threat because of the rising prices of crude oil, it said.
Therefore, the need of the hour is to ensure corrective steps on the policy front and the pricing mechanism for petrol and diesel should be left out to market forces, Assocham said.