Setting the tone for the Budget, the Economic Survey 2011-12 tabled in Parliament on Thursday has strongly advocated raising fuel prices with rise in input costs, mainly due to a rise in global oil prices.
Asking the government to give a fixed amount per litre as diesel subsidy to cut the outgo, the Survey said, "For diesel, where even the rudimentary first step for freeing prices has not yet occurred, a possible intermediate step is to fix a per litre subsidy from the government.""In other words, for every litre of diesel sold by an oil-marketing company, the government will give a fixed subsidy of a certain number of rupees," it said.
At present, the finance ministry meets about half of the revenue that state-owned oil firms lose on selling diesel, domestic LPG and kerosene at government-controlled rates. It provided Rs 41,000 crore fuel subsidy in 2010-11. This fiscal, the oil firms are projected to lose over Rs 137,000 crore in revenue.
The Survey also noted that domestic prices have not been in tune with the rise in global prices.
"If the price of crude oil rises, with the subsidy per litre fixed, the consumer's price will rise and so the signal to save on the use of diesel will be transmitted," it said, adding, the per-litre subsidy be raised if the price rises too high, in order to cushion the consumer.
"What is important is that the subsidy should be pre-specified so that government stays fully out of the picture," it said.
While noting that pre-fixing the subsidy was an interim measure, it said, "since this subsidy is fixed per litre, the government's fiscal burden will not have to take on the full share of the burden created by a rise in the price of crude."