Petrol, diesel cheaper; may ease inflation

Updated on Nov 30, 2006 02:45 AM IST

Following a dip in international prices, Govt cuts petrol and diesel prices by Rs 2 and Re 1 per litre respectively, reports KA Badarinath.

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None | ByKA Badarinath, New Delhi

A day after Congress president Sonia Gandhi suggested that fuel prices be reviewed, the government reduced the retail price of petrol by Rs 2 per litre and of diesel by Re 1 per litre with immediate effect.

Petroleum and Natural Gas Minister Murli Deora made a formal statement in both Houses of Parliament following a decision on Tuesday night. He cited the commitment made by the government to protect vulnerable sections from oil shocks and the fall in international crude prices to $56-58 (Rs 2,500-2,600) per barrel — from $75 (Rs 3,375) in August.

About the decision, Finance Minister P. Chidambaram said: “It should help in easing (inflation) to some extent, but it (inflation) is mostly driven by primary products.” V. Raghuraman, principal adviser, energy, Confederation of Indian Industry, said: “Fuel-price reduction is good for the consumer.  It has been done to contain inflationary trends, and to that extent it is quite positive for the economy.”

The additional burden on the government, following the lowering of oil prices, is estimated to be around Rs 3,000 crore. Indications are that a large chunk of it will be passed on to the oil companies, while the Rs 18,000-crore oil bonds issued in June will take care of the Centre’s own quota of the subsidy burden.

The Petroleum and Natural Gas Ministry estimates that the profitability of oil companies will go down from Rs 3.67 per litre to Rs 2 on petrol. On diesel, state-owned companies will register losses of Rs 2 per litre against the current Rs 1.01.

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