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Public sector oil marketing companies (OMCs) have found support from the economists in the Government for review of diesel prices, but are yet to convince the larger political establishment.
Informally, most economists within the Government agree that there is an immediate need to correct petroleum product pricing, but no one wants to bite the bullet, official sources said.
According to a report by Crisil Research on ‘Diesel price hike critical for OMCs’ liquidity, Government finances’, “Given the seriousness of the problem, it is absolutely crucial that prices of regulated fuels be raised by at least 10-15 per cent immediately and gradually be linked to international prices.”
The alignment of regulated fuel prices with international prices may affect domestic fuel inflation in the short term, but in the long term, the move would help ease the Government’s subsidy burden and reduce wasteful consumption of regulated fuels such as diesel, it pointed out.
“In addition, it will help the OMCs reduce their dependence on the Government for reimbursement of under-recoveries and give them enough flexibility to undertake capital expenditure and make acquisitions,” the report added.
Diesel prices were last revised in June 2011, along with kerosene and domestic LPG prices. According to the OMCs, the desired increase in diesel price for the second fortnight of August is Rs 15.55 a litre.
In fact, there were expectations of a price revision when global crude oil prices had softened and the price at which Indian refiners buy their crude oil hit a low of $89.19 a barrel on June 22, industry observers say.
Since mid-July, crude oil price has again hardened. On the last trading day, August 17, it stood at $112.48 a barrel.
Minister for Petroleum and Natural Gas S. Jaipal Reddy recently informed the Rajya Sabha that while the average international crude oil price in 2012-13 was slightly lower than the average during 2011-12, the price in Indian currency during 2012-13 had increased by seven per cent over 2011-12.
This was due to the sharp depreciation in rupee value against the dollar.
He also said that to insulate the common man from the impact of the rise in international oil prices and domestic inflationary conditions, the Government continues to modulate the retail selling price of diesel, PDS kerosene and domestic LPG.
As a result, during the first quarter of 2012-13, OMCs incurred under recovery of Rs 47,811 crore.
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Published on August 21, 2012
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