Consumers can absorb hike: Reddy

Coming exactly a year after the last price increase in diesel and LPG and the largest hike of Rs 5 per litre in petrol last month,Reddy claimed that today’s was a “very modest increase”,which could not be “grudged by anybody”.

What he did not say was that including local sales tax,the price of diesel is up by Rs 3.40 per litre to Rs 41.15 a litre in Delhi with effect from midnight. While the retail price of LPG goes up by Rs 50 to Rs 395.35 per cylinder in Delhi,in other states there would be an additional tax of 4-12 per cent.

While approving the price hike,EGoM chairman Finance Minister Pranab Mukherjee also took a hit on his ministry’s revenue collection of Rs 49,000 crore in abolishing the 5 per cent Customs duty on crude oil,and cutting excise duty on diesel to Rs 2 per litre — just sufficient to fund roads and education — from Rs 4.60 per litre.

Mukherjee also cut the notional customs duty on diesel and petrol to 2.5 per cent from 7.5 per cent. Since India does not import these products,the duties are used for calculating the refinery gate prices of both products.

The decision to cut Customs duty on petrol means that the required increase of Rs 1.98 per litre in petrol would no longer be required. “There would be no need to enhance the price of petrol (after the duty reduction),” said Reddy.

While the reduction in excise duty on diesel would lead to a revenue loss of Rs 23,000 crore,Customs duty elimination on crude would dent the exchequer by Rs 26,000 crore this fiscal.

Asked how he managed to convince Mukherjee to forego revenue in a difficult year,Reddy said,“I will not give you a glimpse into my kitchen. I will only serve the dishes.”

However,despite the slew of measures,first reported by The Indian Express,state-run oil marketing companies will still end the fiscal with Rs 120,000 crore of under-recoveries,as the price hike would fetch only an additional Rs 21,000 crore.

The deficit will be met through a combination of cash subsidy from the government and contribution from upstream firms like ONGC but the exact sharing between them has not been decided. Before today’s decision,the OMCs were projected to lose Rs 171,140 crores.

While choosing to keep mum on UPA ally and Trinamool Congress chief Mamata Banerjee’s opposition to the price increase,Reddy said that “political problem will always be there. Economic problem will not wait for solution to political crisis”.

“I am sandwiched between economist on the one hand and populist on the other. Economist will say why only Rs 2 per litre increase in kerosene while the populist will say why you increased it even by Rs 2 per litre,” Reddy said. “Consumers can easily absorb the hikes announced today.”