A day after Prime Minister Manmohan Singh said that India would not reverse economic reforms, the government on Saturday allowed oil companies to hike petrol price by Rs. 2.35 per litre and diesel by 50 paise per litre.
Saturday’s hikes came amid a falling rupee, and surge in global oil prices caused by deepening of the Syrian crisis.
Though a section of Congress leadership was averse to the hike in view of five state elections this year and the next Lok Sabha elections, the government went ahead with the raise after petroleum minister Veerapa Moily informed the PM about record losses due to rising global oil rates.
Moily, in his August 30 letter to the PM and finance minister P Chidambaram, made it clear that immediate steps need to be taken to tackle a record Rs. 180,000 crore in losses arising from the dipping rupee and ballooning oil rates.
Moily has indicated that a one rupee increase in diesel price will cut the losses by Rs. 4,522 crore in remainder of current fiscal while a Rs. 3 per litre increase would trim losses by Rs. 13,565 crore.
If rates are raised by a one-time Rs. 5 per litre, the losses would be cut to Rs. 29,390 crore.
Similarly, a R50 per cylinder increase in LPG rates would trim cooking gas losses by Rs. 2,604 crore. Besides, a possible Rs. 2 per litre hike in kerosene price would cut losses by Rs. 1,014 crore
Moily, who also met the PM and Chidambaram on Thursday, said without a price increase the government will have to shell out a record Rs. 97,500 crore to subsidise diesel and cooking fuel.
The three price increases together would bring down government's subsidy outgo to Rs. 50,928 crore, he argued.
However, Moily warned the PM that if “the present position persists, the total under- recovery (revenue loss) would reach to a level of Rs. 180,000 crore in the current financial year as compared to Rs. 161,000 crore during 2012-13.”
The actual hike in fuel rates -- to be effective from Sunday -- will vary from one city to another due to difference in local taxes and VAT.
Petrol will cost Rs. 2.83 a litre more in Delhi at Rs. 74.10 per litre while it will cost Rs. 81.57 per litre in Mumbai as against Rs. 78.61 currently.
Diesel in Delhi (after taxes) has been hiked by 57 paise to Rs. 51.97 per litre while it will cost Rs. 58.86 in Mumbai as compared to Rs. 58.23 currently.
Sources said more hikes would follow shortly and a one-time increase in diesel prices by Rs. 3-5 per litre, domestic cooking gas (or LPG) by Rs. 50 a cylinder and kerosene by R2 a litre is possible after monsoon session of Parliament ends on September 6.
Since June, petrol prices have gone up by a massive Rs. 9.17 per litre, excluding taxes or VAT. With taxes, the price of petrol in Delhi has gone up by over Rs. 11 per litre since June 1.
So far oil companies have followed the government’s policy to revise diesel prices in small doses by 50 paise (excluding VAT). Saturday’s hike is the eighth hike in diesel prices since January 17 and most of the losses on diesel sales should have been wiped off by now to make the fuel market priced.
But the fall in rupee, around 25% since April, has worsened the situation and oil firms are losing R12.12 per litre despite prices being raised by a cumulative Rs. 4.75 this year.