Panel favours deregulation of auto fuel prices (Second Lead)

February 3rd, 2010 - 10:16 pm ICT by IANS  

New Delhi, Feb 3 (IANS) A government-constituted panel Wednesday suggested deregulation of prices of auto fuel, and hike in kerosene and cooking gas prices, noting that there was no clear direct relation between price rise of fuels and inflation.
The committee headed by economist Kirit Parikh suggested that for petrol and diesel, the price increase could be of Rs.3-4 per litre, kerosene Rs.6 per litre, and cooking gas Rs.100 per cylinder.

“There is no way we can continue with the current pricing policy,” said Parikh while discussing the recommendations here, after submitting the report to Petroleum Minister Murli Deora.

“If the crude prices were at $80 per barrel, the under-recoveries have been estimated at Rs.160,000 crore ($32 billion) in 2020. And if the prices rise to $220 per barrel, the under-recoveries will go up to Rs.400,000 crore ($80 billion),” he added.

The total under-recovery for this fiscal is estimated to be Rs.40,000 crore ($8 billion).

“We have recommended that petrol and diesel should be freed at the refinery gate and retail level.”

On fears that auto fuel hike will lead to inflation, Parikh said the committee examined the practice in other open markets. “It is really not clear this (hike) will lead to persistent inflation,” he argued.

Noting that the committee’s brief was to recommend a “viable and sustainable” price policy, which will keep the fiscal burden at manageable levels, Parikh said: “One of the things is to protect the poor.”

For petrol, he said, the committee studied the behavior and usage of two-wheeler users, as they are the most economically weak among vehicle owners.

“We recognized that on an average, a scooter runs 63,000 kilometres per year, which in an urban region like Delhi could increase by another 10,000 kilometres. That means that a scooter driver on an average spends Rs.300 per month on petrol, which for a Delhi resident could be Rs.500 per month,” he said.

The former member of the Planning Commission said that if the petrol price was raised by Rs.3 per litre, the monthly spending on petrol would increase by Rs.20-30. “This can be done,” he said.

Similarly, the committee found that 15 percent of total diesel usage was for agricultural purposes. “We found that the Ministry of Agriculture already does factor in the diesel price while deciding the minimum support price,” he said.

However, Parikh noted, “Kerosene subsidy has to continue as long as electricity does not reach all parts of the population”. He said he hoped the distribution for below-the-poverty-line category would be done through smart cards or on the unique identity platform.

He also said due to the high disparity between kerosene price in India and Bangladesh, there was a certain amount of diversion taking place.

“Also we know that due to the difference in price between diesel and kerosene, nearly 35 percent of kerosene is used for adulterating diesel.”

The quantum of price-rise has been calculated in line with the increase in income of the rural population, so that the proportion of income spent after the hike would be equivalent to that of 2002 levels.

Similarly, for cooking gas cylinder, the calculation for price hike was done in such a way “that percentage per household allocation for LPG remains the same as in 2004″.

The committee also recommended a level playing field for all players in the market, whether state-owned or private.

The upstream companies have suggested a formula so that a part of the additional profit from the production of hydrocarbon from blocks given on nomination basis will come to the central government for subsiding kerosene and cooking gas.

“Even if the world market crude goes up from $70 to $140 per barrel, the amount of subsidy by the government will remain constant at Rs.20,000 crore,” he said.

On further steps expected from the government on the report, Petroleum Secretary S. Sundareshan said: “We have got a directive from the prime minister to process the report immediately. We will be going through the report and processing it to put it before the minister and then the council of ministers.”

Sundareshan indicated that the recommendations of the report may be put before the cabinet in a week to 10 days.

Petroleum Minister Deora ducked questions when asked if the government had the political will to enforce the recommendations.

“It is dangerous for me to reply,” he said jokingly.


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