Petrol prices will be decontrolled from midnight tonight leading to Rs 3.50 a litre hike in rates in Delhi and diesel rates will be linked to market prices in stages, Oil Secretary S Sundareshan said after a meeting of an Empowered Group of Ministers (EGoM) chaired by Finance Minister Pranab Mukherjee.
"For the present, an increase of Rs 2 per litre in diesel prices has been approved," he said.
Prior to the hike, petrol in Delhi cost Rs 47.93 a litre and diesel Rs 38.10 per litre. (Watch: Consumers unhappy)
The government is decontrolling petrol prices after a gap of six years and together with increase in diesel, LPG and kerosene rates, the move would lead to a 0.9 percentage points surge in inflation.
What is decontrol?
- Prices to be fixed by oil firms, not government
- No more subsidy, market-linked prices
- Prices aligned to global crude prices
- Prices to change periodically
Opposition, allies oppose hike:
Opposition parties launched a scathing attack on the government for the unpopular decision, saying it would hit hard the masses already reeling under soaring prices. (Watch: Rollback 'anti-people' price hike, demands BJP) | (Read: Opposition slams Govt's fuel price hike)
Sources said NCP supremo and Agriculture Minister Sharad Pawar told the EGoM that the decisions should not be rolled back.
However, some allies, including Trinamool Congress leader and Union Cabinet Minister Mamata Banerjee, who stayed away from the EGoM meeting, demanded roll-back of the hike that would lead to an inflation spiral.
"I am unhappy. I did not go the meeting to give my approval to the decision of hiking the price of LPG, kerosene and diesel," Banerjee said. (Watch: Not fair to burden common man, says Mamata)
"The important thing is that the government will continue to subsidise common man's cooking fuels - LPG and kerosene," Petroleum Minister Murli Deora said while emphatically stating that none of the members present at the EGoM gave a dissenting note.
Sources said DMK leader M K Alagiri, whose party voiced opposition to the move after the decision, had brought a paper outlining his party's reservations on the move but did not circulate it.
"I know Banerjee is in town but I don't know why did not attending the meeting," Deora said. "All others were very cooperative. (DMK leader and Fertilizer Minister) M K Alagiri and (Agriculture Minister) Sharad Pawar were in agreement with these decisions."
No move to end subsidy:
Giving details of the decision, Sundareshan said that there was, however, no move to end subsidy on LPG and kerosene and added that diesel that is now being sold at a loss of Rs 3.80 per litre would also be eventually priced at market rate.
The hike in petrol and diesel prices is the third this year. Rates where first hiked on February 27 when Finance Minister raised duties on the two fuel and prices were again revised on April 1 on account of introduction of Euro-IV compliant motor fuels.
LPG in Delhi costs Rs 310.35 per 14.2-kg cylinder since April 1 when the state government withdrew subsidy on the fuel.
The last major revision in kerosene price, which currently costs Rs 9.32 per litre in Delhi, was on March 1, 2002 when rates were hiked by about Rs 1.60 per litre.
Sundareshan said Friday's decisions will help bring down the revenue oil PSUs lose on selling fuel by about Rs 21,000 crore to Rs 53,000 crore. "This (Rs 53,000 crore) under recovery will be borne by the Government and upstream oil companis like ONGC," he said.
The government's own economic adviser Kaushik Basu said monthly inflation, currently at 10.16 per cent, could go up by 0.9 percentage points as a result of the decision.
Sundareshan said decontrol of petrol price would result in reduction in under recoveries (revenue loss) of oil PSUs by Rs 7,000 crore.
Fuel price hike to cut revenue losses:
Before Friday's hike, the oil PSUs were projected to lose Rs 74,300 crore on selling petrol, diesel, domestic LPG and kerosene below cost. Diesel price hike would cut revenue loss by Rs 9,000 crore and cooking fuel price increase would help them garner Rs 5,000 crore.
A lower fuel subsidy bill may help the government reduce the fiscal deficit substantially. It was an estimated 6.9 per cent last year.
The move would also help private retailers like Reliance Industries and Essar Oil who had in 2008 mothballed their petrol pumps nationwide after they couldn't match prices offered by state-run rivals.
The EGoM decision were based on recommendations of the expert group headed by former Planning Commission member Kirit Parikh. The group had called for freeing petrol and diesel prices from state control and raising LPG rates by Rs 100 per cylinder and kerosene by Rs 6 per litre.
The NDA government had in April 2002 freed petrol and diesel prices from government control and allowed Indian Oil, Bharat Petroleum and Hindustan Petroleum to fix prices on 1st and 16th of every month based on the fortnightly average of international rates.
This practice was stopped just before the General Elections in 2004. The UPA Government in June 2004 formally took over the task of fixing auto fuel prices.
(Read: Statement by Left parties on the fuel price hike)