An empowered panel of ministers led by finance minister Pranab Mukherjee on Monday deferred a decision on freeing up the price of petrol and diesel and on raising the price of PDS kerosene and LPG. The proposals were aimed at making the government and its fuel retailing firms healthier by cutting down the subsidies that make cooking and auto fuel cheap to the consumers.
Petroleum minister Murli Deora told FE that Monday?s meeting of the empowered group of ministers was inconclusive. Secretary in the ministry, S Sundareshan, said another meeting would be held shortly to take a final decision on the proposals. Both the functionaries had to wriggle back into the North Block, the finance ministry headquarters where the meeting was held, as a gathering of reporters and television crew gathered the momentum of a stampede.
Key ministers Sharad Pawar, Kamal Nath and Mamata Banerjee did not attend the meeting.
The meeting assessed the state?s financial burden on keeping fuel cheap as well as the possible impact on the cost of living if prices are raised. A raise in fuel prices could adversely affect the fortunes of the ruling Congress party in Bihar, where state assembly elections are scheduled later this year and in Kerala, West Bengal and Tamil Nadu where polls are expected next year. The Congress-led UPA government restored early this year the taxes it had cut in 2008 when crude oil prices shot up to historic levels.
A statement subsequently issued by the petroleum ministry said, ?The empowered group of ministers has come to the conclusion that further discussion would be necessary before views are firmed. A further meeting will be scheduled shortly.?
The government said that the panel considered a presentation on the recommendations of the Kirit Parikh committee that recommended de-regulation of petrol and diesel price at the refinery and retail levels, a Rs 6-a-litre jump in kerosene price and a Rs 100-a-cylinder increase in LPG. ?The panel noted that the under-recoveries suffered by oil marketing companies on account of the present price structure and the burden faced by the government by way of compensating the companies for the under-recoveries during the period 2003-04 to 2009-10 was in excess of Rs 3,45,000 crore,? the statement said.
However, the subsidy that the government gives to keep fuel cheap, is only a fraction of the tax revenue coming from the sale of petroleum products. According to the latest report of the Parliament?s standing committee on petroleum and natural gas, fuel subsidy by the government was 27% of the petroleum sector?s contribution to the central government exchequer in 2006-07. It rose to 35% the next year and further to 79% in 2008-09 when crude oil price scaled historic levels in global markets. In the nine months to December 2009, it was 25%. The Parliamentary panel therefore, asked the government this May to reduce taxes. The finance ministry, which fully exempted crude oil from basic customs duty and proportionately lowered the same on finished petroleum products in 2008, restored 5% import duty on crude, 7.5% on petrol and diesel and 10% on other refined products in this year?s budget to contain fiscal deficit.