Petrol, diesel, cooking gas to cost more in India (Round-up)

June 4th, 2008 - 5:23 pm ICT by IANS  

A file-photo of Manmohan Singh

New Delhi, June 4 (IANS) Despite political opposition, the government Wednesday allowed a 9.5-11 percent increase in prices of cooking and transport fuels, but cut customs and excise duties on crude and petroleum products to ease the financial burden on state-run oil firms, reeling under high global oil prices. This has been the highest hike allowed so far in fuel prices in the country - a move that has invited disapproval from both the opposition Bharatiya Janata Party (BJP) and the Left parties that prop the ruling United Progressive Alliance (UPA) coalition.

The decision, taken at a marathon meeting of the Cabinet Committee on Political Affairs presided over by Prime Minister Manmohan Singh, would result in petrol becoming dearer by Rs.5 per litre, diesel by Rs.3 and cooking gas by Rs.50 per cylinder.

The hikes take effect midnight Wednesday.

“There were no other options before the government. We were helpless. So the decision was taken to revise the prices,” Petroleum Minister Murli Deora told reporters here after the two-hour meeting at the prime minister’s official residence.

Deora also requested state governments to chip in to reduce the burden on the average citizen by lowering the sales tax on petroleum products, which is as high as 30 percent in some states.

Normal unleaded petrol is now expected to cost Rs.50.52 a litre in the national capital and Rs.55.51 in Mumbai, while diesel is expected to retail at Rs.34.76 and Rs.39.08, respectively, in the two metros.

The cabinet meeting also decided to bring down customs duties on crude oil to nil from five percent earlier, and on diesel and petrol to 2.5 percent from 7.5 percent. Excise duty has also been cut by Re.1 per litre on the two products.

Officials in the finance ministry told reporters later that the reduction in various levies will cost the exchequer Rs.226 billion during the remaining 10 months of the current fiscal.

They also said three state-run oil retailing firms - Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum - would receive Rs.946 billion ($22 billion) as bonds to ease the fiscal burden for selling petroleum products below cost.

The decisions resulted in shares of these state firms rising some 4 percent.

Prices of petrol and diesel were last raised in India in February after close to 20 months. At that time crude oil prices were ruling at $67 per barrel, against $125 now. India imports a little over 70 percent of its crude oil needs.

Wednesday’s meeting was attended by Deora, External Affairs Minister Pranab Mukherjee, Defence Minister A.K. Antony, Finance Minister P. Chidambaram, Railways Minister Lalu Prasad and Transport Minister T.R. Baalu, among others.

Soon after the cabinet’s decisions was communicated to the nation, political parties deplored the price hike and said it would be suicidal for the ruling coalition that has entered an election year.

“This isn’t a marginal hike. It’s a substantial hike. It will have a deleterious effect. It will fuel inflation. So the Left parties will have a week-long protest from Thursday,” Communist Party of India-Marxist leader Prakash Karat said.

India’s annual rate of inflation has topped the worrisome eight-percent mark and stood at 8.1 percent for the week ended May 17.

“This is an economic terror unleashed on the country. The prime minister has put another burden on the people. This will cause an upheaval in the nation. It is a black day for the country,” BJP spokesperson Rajiv Pratap Rudy said.

Also on expected lines was the reaction from the average citizen who felt that the hike would result in prices of other commodities going up as well, mainly essential items of daily consumption.

“I have to now juggle my entire monthly budget. The hike is too much to handle, especially for a middle-class housewife. I have to cut down on purchases,” said Minu Agarwal, a housewife in the national capital.

Ever since prices of global crude oil prices started going up - and even topped $135 per barrel at one point - the government has been contemplating how to ease the burden on state-run fuel retailers, who are not permitted to revise prices unless permitted by the cabinet.

A series of meetings followed both within the government and outside since the ruling coalition was wary of the political fallout of hiking fuel prices, having entered an election year. The electoral setbacks to the Congress party in some states like Karnataka and ballotting due in some others in coming months made the task even more difficult.

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