Diesel price hike coming soon as govt clears deregulation, raises LPG cylinder quota to 9 from 6

Jan 17 2013, 17:55 IST
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EC grants no objection to government's proposal for raising cap on LPG gas quota. (Thinkstock) EC grants no objection to government's proposal for raising cap on LPG gas quota. (Thinkstock)
SummaryGovt looks to take the bite out of the very touchy diesel issue with a LPG handout.

the LPG cap would mean an additional subsidy outgo of Rs 9,300 crore annually.

On diesel front, sources said the government has kept the quantum of hike and the timing a secret to avoid petrol pumps stopping sales to make quick profits.

Oil Secretary G C Chaturvedi said CCPA has authorised oil firms to make "small changes over a period of time".

"There was no discussion on the quantum of price increase or the period over which these changes are to be effected. It has been left to the oil companies," he said.

He, however emphatically stated that the government had not deregulated diesel prices. "If we are to deregulate, then diesel price will have to be raised by Rs 9.60 per litre, which is not the case. Only a small quantum of change has been permitted over a period of time."

Asked if it was partial deregulation, he said "it wasn't even partial deregulation." The government, he said, will continue to subsidise diesel, cooking gas and kerosene.

"The finance ministry will meet all of the under recoveries (loss)," he said.

State-owned oil companies sell diesel at a loss of Rs 9.60 per litre, kerosene at Rs 30.64 a litre and LPG at Rs 490.50 per 14.2-kg cylinder.

For the full 2012-13 fiscal, they are projected to lose about Rs 165,000 crore.

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COMMENTARY

VIVEK RAJPAL, STRATEGIST, NOMURA, MUMBAI

"Given oil companies still need to take the approval from government authorities, I am not too excited about this news. Though the first market reaction is positive, I really doubt the sustainability of such a reaction based on this news, especially once markets take a look at details."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI "It's better to make step-wise adjustments rather than a one-off large scale adjustment. Earlier, when petrol prices were de-regulated, they hardly responded to market forces. Today's announcement will depend on how frequently and how genuinely OMCs respond to market forces."

ANOOP VERMA, BOND DEALER, DEVELOPMENT CREDIT BANK, MUMBAI "It is a positive sign. Everyone is however little sceptical about how fast or will it be implemented. The government is the owner of these companies and will always have a say in the pricing. Bonds markets went higher initially but prices gave up some gains later on this scepticism."

ANAND MAHINDRA, CHAIRMAN, MAHINDRA & MAHINDRA, IN A

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