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India treads softly on price hike

business Updated: Mar 02, 2011 21:34 IST
Anupama Airy
Anupama Airy
Hindustan Times
Anupama Airy

Ahead of assembly elections in five states, the government has decided to tread cautiously on the ticklish issue of a fuel price hike that has become necessary due to a surge in global crude oil prices.

Petroleum ministry sources said an increase in the petrol price may be announced soon, but a decision on diesel and cooking gas prices would have to be delayed as the Congress-led UPA government is trying to generate a consensus.

On the quantum of hike in petrol prices, sources said it may vary from state to state. Ahead of elections, Tamil Nadu has reduced sales tax on petrol, which has thus become cheaper by Rs 1.38 a litre. "Other states may follow suit and the effective increase in petrol price may be limited to Rs 1-1.50 a litre.

India imports nearly 80% of the crude oil it uses - more than 60% from the Middle East.

"The government has limited choices and may be forced to either hike diesel and cooking fuel prices or shell out more on oil subsidy if global crude oil prices continue to rise," chief economic advisor Kaushik Basu said on Wednesday.

The CPI-M on Wednesday asked the government not to burden the people but absorb the hike in global crude rates by reducing ad valorem tax in oil.

"The government has made over Rs 2.2 lakh crore through duties and taxes on oil," party Politburo member Sitaram Yechury told PTI. "When global crude prices increase, the import duty collection and the government's profits rise also."

"The government should plough back this profit to the petroleum sector and create a cushion so that when global prices rise, the consumer is not burdened," he said.