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Decontrol petrol, diesel prices: Survey

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Favours reform of subsidy to reduce leakages and ensure targeting.

A file photo of kerosene vendors in Chennai. The Survey suggests phasing out kerosene supply-subsidy by ensuring that every rural household (without electricity and LPG connection) has a solar cooker and solar lantern. —
A file photo of kerosene vendors in Chennai. The Survey suggests phasing out kerosene supply-subsidy by ensuring that every rural household (without electricity and LPG connection) has a solar cooker and solar lantern. —

Our Bureau

New Delhi, July 2 Just a day after the Government raised auto fuel retail prices, deregulation of petrol and diesel prices has emerged as one of the key recommendations in the Economic Survey 2008-09.

Suggesting some other major reforms for the energy sector, the Survey has also proposed limiting subsidy on domestic LPG and phasing out kerosene supply subsidy.

The suggestion for decontrol on auto fuel prices to curb demand, made in the survey for the energy sector, is in sync with the industry demand. This is while the Government is still treading cautiously on the issue. While the survey proposes a crude price ceiling of $80 a barrel for decontrolling diesel price, it has set no ceiling for petrol price.

“Decontrol 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 price),” it has proposed.

“….It was, therefore, imperative that petrol and diesel prices be decontrolled so that buyers were aware of the opportunity cost of oil imports and thus contributed their might to economising on the use of refinery products. As long as domestic prices remained below the cost of imports, demand would continue to grow, accentuating the negative impact of the terms of trade effect on national income,” the survey has said.

The petroleum sector was shaken by the wild swings in international oil prices during 2008-09. The Indian crude basket, which averaged $79.25 a barrel during 2007-08, went up to $142.04 a barrel on July 3, 2008 and then slumped steeply to $35.83 a barrel on December 24, 2008, before recovering to $46.02 a barrel in March 2009. Currently, the basket is hovering around $70 a barrel. The average of 2008-09 stood at $83.57 a barrel.

Survey suggestions

While commenting on fiscal sustainability and tax simplification, the survey has advocated for reform of petroleum — domestic LPG and kerosene — subsidy to reduce leakages and ensure targeting, so that all the needy get the intended benefits. “Limit LPG subsidy to a maximum of six-eight cylinders per annum per household. Phase out kerosene supply-subsidy by ensuring that every rural household (without electricity and LPG connection) has a solar cooker and solar lantern,” the survey said.

To raise domestic crude oil production, the survey suggested the sale of old oil fields to the private sector for application of improved or enhanced oil recovery techniques.

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(This article was published in the Business Line print edition dated July 3, 2009)
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