An expert group headed by former Planning Commission member Kirit Parikh has recommended immediate hikes in prices of fuels sold by oil marketing companies below cost — diesel by R5/litre, kerosene by R4/litre and the subsidised LPG price by R250/cylinder. It has also charted a rather short-term (not exceeding two years) road map for elimination of the subsidies on diesel and LPG while the kerosene subsidy amount could be reduced substantially by completing the roll-out of direct subsidy transfer to BPL families within two years. PDS allocation of kerosene, which carries subsidy, would anyway come down with the spread of rural electrification and increased use of LPG and PNG for cooking, the panel noted.
The immediate steps recommended, according to the panel, entail savings in subsidies (borne by the government and upstream oil firms) of over R92,000 crore over a year, subject to certain levels of crude price and the rupee. It has seen that with the measures it proposed, the government’s share of oil subsidy burden could be reduced drastically to R29,130 crore in FY14 and nil in FY15 (provided the crude price averages $100/barrel and the rupee rules at 60 to the dollar).
Coming as it does ahead of the state and Parliament elections, even the panel head, however, did not sound optimistic about expeditious implementation of the proposals. “We recognise it may not be possible right now to increase prices by the same quantum as suggested in the report,” Parikh said.
The Parikh committee recommended continuation of the trade parity pricing (TPP) pricing to calculate under-recoveries on sale of subsidised fuels, notwithstanding the finance ministry arguing for a shift to export-parity pricing. The ministry has submitted a note of dissent to the committee’s report, where it claimed adoption of EPP would help save the exchequer Rs 13,500 crore annually.
Parikh reckons that export-parity model – as opposed to the extant trade-parity price based on 4:1 ratio of the landed cost of imports and the export price in case of diesel and 100% import parity in case of LPG and kerosene – will not yield any big savings to warrant such a policy change.
In January, the government allowed fuel retailers to raise the price of subsidised diesel by Rs 50 a litre every month and asked bulk buyers to pay market rates. Although price hikes were implemented in several months, the depreciation of the rupee ensured that the under-recovery on diesel, the