The empowered group of ministers (EGoM) on fuel prices has decided to decontrol the prices of petrol while price of diesel has been increased by Rs 2. The prices of cooking fuels kerosene and LPG have been increased by Rs 3 per litre and Rs 35 per 14.2 kg cylinder.
The government may deregulate price of diesel at a later stage but those of cooking fuels will continued to be subsidised.
As per the decision taken by the EGoM, the prices of petrol will from now on be determined by the market forces. This would mean a hike of around Rs 3.5 per litre in price of petrol. The diesel prices have been hiked by Rs 2 per litre for the time being. But the EGoM added that diesel prices too would be deregulated in future, probably as and when the general inflation comes down from the currently elevated levels.
With regard to cooking fuels, the EGoM has hiked the prices of kerosene by Rs 3 per litre while that of LPG gas has been increased by Rs 35 per 14.2 kg cylinder. The government however was also categorical in stating that prices of cooking fuels will not be freed and would continue to attract subsidy in the foreseeable future.
Nonetheless, the decision must go down as a historical one as far as energy policies and energy security of the country is concerned. There has been a lot of criticism of the untargeted subsidies being doled in by the government in fuels. How bad the situation had become on oil subsidy can be visualised form the fact that under-recoveries of the OMCs had surged to over Rs 1 lakh crore in 2008-09, which resulted in government bearing a burden of around Rs 85,000 crore, amounting to around 10% of the overall expenditure budget for the fiscal.
According to the estimates given by the oil ministry, the under-recoveries of the OMCs in the current fiscal will come down to around Rs 53,000 crore from Rs 85,000 crore which would have been the case sans the decision taken today by the EGoM. It may be noted that government will not have to bear all the burden of under-recoveries as upstream companies and probably to some extent the downstream ones too will be made to share a part of this. While a final decision on subsidy sharing formula is yet to be taken, looking at arrangement in last few fiscals it seems that the overall burden of the government in terms of oil subsidy may come down to around Rs 35,000 crore.
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