Was Hike In Fuel Price Justified?
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Was hike in fuel price justified?

Market Analyst

Just five days before the union budget is to be presented, India Wednesday allowed state-run oil firms to increase prices of transport fuels, resulting in gasoline becoming dearer by Rs.4 per litre and diesel by Rs.2 per litre, following successive increase in global crude prices.

Petroleum Minister Murli Deora told reporters at a hurriedly convened press conference here that the new prices take effect from the midnight of Wednesday. He made the announcement soon after a meeting with Prime Minister Manmohan Singh.

'The prices of kerosene and cooking gas are not being changed,' Deora said, adding the government will continue to incur a subsidy of Rs.15.26 per litre and Rs.92.96 per cylinder on these two fuels, respectively.

He said even in the case of petrol and diesel, oil-marketing companies will continue to incur a loss of Rs.2 per litre and Rs.1.62 on petrol and diesel, respectively, on account of selling these fuels below cost.

Pandey said the Indian basket of crude oil was ruling at $70.29 per barrel as of Tuesday, against $58.80 on May 20 and around $40 in December last year. But the burden on oil companies will not be more than what it was in the past.

He said that 'to the extent possible, we will resource the under-recoveries from upstream companies (Oil and Natural Gas Corp and Oil India)'.'But, the upstream companies's burden will also not be more than what has been in the past,' Pandey added.

The previous hike in price had taken place in June 2008, when the retail prices were raised by Rs.5 for petrol and Rs.3 for diesel.The price of cooking gas and kerosene had not been touched during any of these price revisions.

Interestingly, unlike previous instances, there was no cabinet decision made before the price increase was announced this time.This is an inter-ministerial issue. It is only on basis on inter-ministerial discussion that this has been decided,' said Pandey.

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