The government on Monday ruled out the prospect of phasing out subsidies on diesel in favour of a dual pricing regime, even as Petroleum Minister Murli Deora indicated a better mechanism is in the pipeline.
"There is no way you can have dual prices for diesel. On a petrol pump, you can not have one price for cars and another price for farmers," Petroleum Minister Murli Deora told reporters on the sidelines of a parallel session of the Petrotech 2010 oil and gas conference at Ficci headquarters here.
Deora was referring to the proposal to have differential pricing of diesel for various consumers.
"Why should the government provide a subsidy of Rs 3 per litre on diesel for people who ride in a Mercedes?," Deora asked.
However, he threw his support behind the proposal to extend a subsidy on diesel to farmers while addressing the conference. "Oil companies are losing about Rs 3 per litre on diesel. We would very much like to provide this as a subsidy given to farmers," he said.
Deora said the government is working on a mechanism for better subsidy management, but ruled out any immediate deregulation of diesel prices. "There is no time line for it (deregulation of diesel prices). We have been fighting for price deregulation. Now petrol is deregulated and up till now, it is successful," he said.
At present, the retail price of diesel is Rs 2.87 a litre less than the cost of production, even though state-owned oil marketing companies are expected to register under-recoveries of Rs 55,000 crore this fiscal at an average crude price of $ 75 per barrel.
On June 25, the government had decontrolled petrol prices and said that diesel would also migrate to a free price regime shortly. At the time, an ad-hoc Rs 2 a litre increase in diesel price was effected.
Last month, it decided to give Rs 13,000 crore to compensate Indian Oil, Bharat Petroleum and Hindustan Petroleum for their subsidy burden in the first half of the 2010-11 financial year. The state-owned oil marketing companies have lost about Rs 31,600 crore in revenue due to selling products below cost during the first half of the fiscal.