The government is planning to increase diesel price by up to R3 a litre in a week, while oil marketing companies IOC, HPCL and BPCL are contemplating a similar increase in the price of decontrolled petrol, a government official said on Wednesday.
?An empowered group of ministers led by finance minister Pranab Mukherjee will meet on May 11 to consider a price increase in diesel,? the official said.
Petroleum ministry officials on Tuesday discussed with the Election Commission the issue of raising prices before assembly election results are announced on May 13. The Commission is believed to have cleared the move, the official said. The ministerial panel will discuss how to reduce the subsidy burden, that is estimated to be about R180,000 crore this fiscal.
In 2010-11, the government gave a subsidy of R38,000 crore to retailers, while upstream companies ONGC, Gail India and Oil India gave R26,000 crore as their share of fuel subsidy. For the 2011-12 fiscal, the government has earmarked R23, 000 crore subsidy, which will invariably go up given the very high level of crude price.
?The situation in the current fiscal will be worse, the three PSU oil marketing companies are losing R540 crore per day on diesel, domestic LPG and kerosene sales,? the official said. The Indian basket of crude has now crossed $121 barrel, the highest level since last April.
The government has limited options ? step up subsidy, let oil companies suffer losses or pass on the hike to consumers. The government is likely to resort to a combination of these three including passing on a part of the high cost of crude oil to consumers.
The exact quantum of the rise would be decided depending on its political tolerance. Finance ministry sources told FE that it makes good economics to effect any price increase by several small measures.