Decontrol fuel prices, limit subsidies: Economic Survey (Lead)

July 2nd, 2009 - 7:27 pm ICT by IANS  

New Delhi, July 2 (IANS) India’s Economic Survey tabled in parliament Thursday called for decontrolling petrol and diesel prices “at the earliest” and reforming subsidies to cooking gas and kerosene.
The survey said the subsidies regime, including that of liquefied petroleum gas (LPG) and kerosene, had to be reformed so that “all the needy get the intended benefit”.

“Limit LPG subsidy to a maximum of 6-8 cylinders per annum per household,” it said in its recommendations on fiscal sustainability and tax simplification.

It added that kerosene subsidy could be totally phased out “by ensuring that every rural household (without electricity and LPG connection) has a solar cooker and solar lantern”.

Under the title “energy dependence or independence”, a slew of measures were suggested on the topic - the first of which called for “decontrol” of petrol and diesel prices.

“Develop a policy response system and financial buffer for use when diesel prices rise above the oil equivalent price of $80 a barrel (in 2008 prices)”.

In 2008-09, international crude prices see-sawed from record high to record low. The Indian basket of crude oil reached a high of $142.04 per barrel in July, before falling by over 100 dollars to $35.83 in December 2008.

The under-recoveries - or the difference between the acquired purchase and the regulated retail rates - had ballooned to Rs.103,292 crore in 2008-09, compared to Rs.77,123 crore in 2007-08 and Rs.49,387 crore in 2006-07.

The government has issued oil bonds amounting to 59 percent of this subsidy burden to the state oil companies, with the rest borne by upstream companies, - Oil and natural Gas Corp (ONGC) and Oil India.

India has seen an decline in domestic crude output last fiscal, but the production of petroleum products increased by 3.9 percent.

Diesel consumption growth rate dropped to 8.4 percent in 2008-09 from 11.1 percent the previous fiscal.

“Major reasons for the slowdown in growth included industrial slowdown, business slowdown in sectors like automobiles and transporters strike in January 2009,” the report said.

There had been an increase of 3 percent in refinery production, thanks to an “impressive growth” of private sector output.

Under the government’s new exploration licensing policy, an amount of $10 billion has been committed April 1, 2009 on exploration, out of which just about $4.7 billion has been spent so far.

ONGC’s overseas acquisition arm, ONGC Videsh, produced over 8.78 million tonnes of oil from its assets in Sudan, Vietnam, Russia, Syria and Colombia in 2008-09.

During this period, OVL also acquired Imperial Energy.

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