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Petrol price set free to rise

business Updated: Jun 26, 2010 01:22 IST
HT Correspondent
HT Correspondent
Hindustan Times

Prepare to pay more for your transport and cooking gas. Then wait to see how this inflates the prices of other goods and services.

Effective Friday midnight, the price of petrol will go up by Rs 3.50 per litre, while that of diesel will rise by Rs 2 per litre.

Households will also have to shell out an additional Rs 35 for every LPG cylinder and Rs 3 per litre for kerosene.

The government has finally bitten the bullet in implementing a long-awaited deregulation — lifting government control and allowing oil companies to fix prices of fuels on the basis of market forces — of state-controlled prices of petrol.

Diesel prices will also get deregulated, but will be implemented in phases.

Kerosene and LPG prices, however, will continue to remain government-determined.

But there could be more.

By handing over power to calibrate local prices with global crude movements to oil marketing companies, the empowered group of ministers on Friday institutionalised the process of price revisions.

That means price hikes could come in frequent little doses — fortnightly or monthly — rather than rare one-shot hikes.

“The government was left with no choice and was forced to take a decision to free petrol and diesel prices in the larger interest of the nation,” petroleum minister Murli Deora said.

Deora said subsidies in kerosene and LPG would cost the government an estimated Rs 53,000 crore in 2010-11.

High fuel costs are expected to fan prices of most goods that could push the inflation rate, currently at 10.2 per cent, higher.

The government, however, said the impact on prices would be minimal.

“I expect an increase of 0.9 percentage points in the inflation rate,” Chief Economic Advisor Kaushik Basu said.

The politically sensitive but bold measure arms Prime Minister Manmohan Singh with a free market agenda, as he meets G20 leaders to discuss the global financial crisis at Toronto on Friday.

The sustainability of the latest move remains to be seen.

The NDA government had in April 2002 took the first attempt at deregulation of petroleum prices.

But the practice was stopped just before the general elections in 2004 and petroleum prices have remained under government control since then. The UPA government in June 2004 formally took over the task of fixing auto fuel prices.