Key ministers of the ruling coalition led by finance minister Pranab Mukherjee, will try to agree on free-market pricing of petrol and diesel and increase in the price of kerosene and liquified petroleum gas (LPG), on Monday so that the government and its enterprises will be spared of the burden to subsidise fuel.
Senior officials in the petroleum ministry declined to comment on the outcome of the proposed June 7 meeting of the ministerial panel but said the meeting will examine the political acceptability of freeing up petrol and diesel price and raising kerosene price by Rs 6 and LPG price by Rs 100. While a price rise will fuel inflation in due course, a free-market pricing of petroleum products would help private refiners like RIL and Essar to make a return to retailing. Now they cannot compete with state owned firms because of the subsidies.
While the ruling Congress party is convinced that petrol and diesel prices have to be de-regulated, and kerosene and LPG prices have to be raised, the views of alleys DMK and Trinamool Congress would determine the eventual compromise formula. DMK?s M K Alagiri and Trinamool?s Mamata Banerjee are members of the ministerial panel.
Economics justifies free market pricing because subsidies do not facilitate responsible use of the scarce fossil fuel and it severely reduces the state?s ability to deploy funds for welfare and development purposes. Subsidies by state-owned companies such as ONGC and GAIL affect their ability to invest in business expansion, officials said.
Last fiscal, state owned oil retailers IOC, HPCL and BPCL realised Rs.46,051 crore less than what they would have got had they been allowed to recoup their full costs. This gap, referred to as under-recoveries, was partially compensated by the government with a cash assistance of Rs.26,000 crore, and by upstream companies such as ONGC and GAIL to the extent of Rs.14,430 crore by way of discounts.