Late Thursday evening, Indian Oil Corporation announced an increase of 45 paise per litre in the price of diesel, effective midnight. IOCL also cut the price of petrol by 25 paise per litre. Both price changes were excluding VAT, and effectively translate into an increase of 50 paise and a decrease of 30 paise for the two auto fuels respectively at pumps in Delhi. Prices at pumps in other cities will vary according to prevalent taxes.
Bulk consumers such as state transport corporations and the Railways will no longer be eligible for subsidy, and will pay “non-subsidized market determined” prices. IOCL said diesel for bulk consumers will be dearer by Rs 9.25 per litre, excluding VAT, from Thursday midnight.
“As a result..., under recoveries on diesel both bulk and retail shall decrease by approximately Rs 3,400 crore till March 2013,” the IOCL statement said.
The cabinet committee on political affairs (CCPA) considered political repercussions and the impact on the aam aadmi before deciding to stagger the increase in the price of diesel over several small doses.
The CCPA meeting considered the report of the Vijay Kelkar committee that had recommended wiping out the entire Rs 9.60 per litre subsidy on diesel through increases of Re 1 per litre every month. While agreeing that an increase was unavoidable, the meeting concluded that an attempt should be made to soften the blow.
The price of diesel was last revised in September 2012, when it was raised by a steep Rs 5.63 per litre. “We have given some liberty to oil marketing companies to raise diesel prices in small doses. They are authorised to make small price corrections from time to time,” Petroleum Minister M Veerappa Moily said after the cabinet meeting.
“They should exercise this discretion in such a manner that inflation is not impacted. Also, the entire burden is not put on consumers,” Moily added. Asked what “small” increases meant, the minister told reporters, “Small means small.”
Moily denied that diesel prices had been deregulated, and said that the government would continue to subsidise the fuel. A “partial decontrol” of fuel prices broadly entails a mechanism wherein the subsidy element is “fixed” per litre of the fuel, and prices are allowed to fluctuate within a band, in tune with “market prices”.
Since June 2010, when petrol prices were decontrolled, the country has seen an effective increase of over 30 per cent in the retail price of petrol, over some 26 price changes, including 19 increases. Though oil companies are technically free to set the price, in reality, most hikes are seen to be vetted by the government. Oil companies have been reported to be looking to revise the price of petrol since November last year, citing the adverse exchange rate — however, no increase happened until as recently as last Tuesday.
Raising the cap on subsidised LPG cylinders from six to nine is expected to cost the government an additional Rs 9,300 crore annually. Last month, when the election process was on in Gujarat and Himachal Pradesh, Moily said that the government was set to raise the cap — a statement that got him into trouble with the Election Commission.
Opposition parties were quick to slam the decision on diesel, saying transport costs and inflation would rise. “It will increase all transport costs for passengers as well as goods. It will increase costs of irrigation, tractors and other agricultural inputs,” BJP spokesman Prakash Javadekar said.
He described the raising of the subsidised LPG cap as a “farce”, and demanded that the government “must withdraw its decision and enforce the earlier regime allowing any number of LPG cylinders for domestic use”.
CPM general secretary Prakash Karat said, “This will lead to continuous increase in the prices of diesel just as it happened with the prices of petrol after deregulation.” He said the raise in the cap on LPG cylinders to nine was insufficient and provided little relief.