The decisions on diesel rate increase for retail and bulk consumers will cut subsidies by about Rs15,000 crore on an annualised basis and by Rs3,400 crore in remainder of FY’13

New Delhi: In bold reforms, the government Thursday moved towards deregulating diesel when it raised prices by 50 paise per litre and planned similar monthly hikes in future to cut record subsidies, reports PTI.

This was coupled with a decision to charge bulk consumers like defence, railways and state transport undertakings market price which is almost Rs10 a litre more than retail selling rate, to save an estimated Rs12,907 crore in annual subsidy.

As a sweetener to the bitter pill, the Cabinet Committee on Political Affairs chaired by prime minister Manmohan Singh bowed to public pressure to raise the cap on subsidised LPG to nine cylinders per household from six.

State-owned oil companies in a parallel cut petrol price by 25 paise a litre in view of softening in global oil rates.

The decisions on diesel rate increase for retail and bulk consumers will cut subsidies by about Rs15,000 crore on an annualised basis and by Rs3,400 crore in remainder of FY’13.

While the base hike in diesel price was 45 paise, it will lead to an increase of 50 paise in Delhi after including local VAT. New rate of Rs47.65 a litre will be effective from midnight 17^th January.

Similarly, while the base rate cut on petrol was 25 paise, it will translate into a reduction of 30 paise in price in Delhi to Rs67.26 a litre with effect from midnight 17^th January.

While subsidised LPG rates haven’t been increased, non-subsidised cooking gas which consumers will buy beyond their new entitlement of nine cylinders will cost Rs46.50 more at Rs942 per 14.2-kg cylinder.

Bulk users, which consumer around 17.77% of the total diesel sales in the country, will pay Rs56.88 a litre in Delhi. These rates would be revised on 1st and 16th of every month based on previous fortnight average oil cost. The same is the methodology followed for pricing of jet fuel (ATF).

Prices vary from city to city due to differential local sales tax or VAT rates.

The hike in diesel price will help neutralise the Rs10,000 crore hike in bill to subsidise domestic cooking gas (LPG) whose rates along with kerosene have been untouched.

Oil ministry M Veerappa Moily said the decision to allow oil companies to make “small changes” in diesel rates from time to time was necessitated as oil companies, which import about 80% of their oil needs, faced closure in absence of being able to recover even cost.

Oil company borrowings hit Rs200,000 crore. Diesel accounts for 59% of the estimated Rs161,000 crore fuel subsidy bill in 2012-13.

“We have given some liberty to oil marketing companies to raise diesel prices in small dozes. They are authorised to make small price correction from time to time,” Moily said.

“They should exercise this discretion in such a manner that inflation is not impacted. Also, the entire burden is not put on consumers,” he said. “The decisions (on price increase) will be balanced and with a human face.”

Asked what small meant, he said “small means small.”

Finance minister P Chidambaram maintained that the oil companies have been allowed to make “small correction from time to time.”

“I am not factoring in at this moment (the price rise). I am proceeding on the basis that the subsidy bill remains the same (as earlier),” he said.

Opposition parties and allies like Samajwadi Party slammed the government’s decision on diesel calling it deregulation. Demanding a rollback, they said the decision to allow periodic hike in diesel prices would have an all-round spiralling effect on commodity prices and transportation cost.

They were not impressed by the decision to raise the cap on LPG cylinder calling it is a political gimmick.

The price cut in petrol, which was deregulated in June 2010, is the first revision since November and was announced by oil companies independent of the government decision.

Previously, petrol price was cut twice in October and November—first by 56 paise and then by 95 paise per litre.

Price of diesel was last revised on 14^th September when it was hiked by a steep Rs5.63 per litre. Kerosene rates have not changed since June 2011 and it currently costs Rs14.79 per litre in Delhi.

Subsidised LPG costs Rs410.50 per 14.2-kg cylinder and any household requirement beyond the new cap of nine cylinders will have to be bought at Rs942 per bottle.

As per the 13^th September decision of the CCPA, which had originally capped subsidised LPG supply at six cylinders per household in a year, the non-subsidised LPG was to be market priced.

Oil secretary GC Chaturvedi said after yesterday’s decision, consumers will get five subsidised cylinders instead of previously mandated three in the period to 31 March 2013. From 1 April 2013 they will get nine cylinders in a year.

Moily said the decisions at CCPA were based on recommendations of the Vijay Kelkar Committee, which was appointed by the Finance Ministry to suggest a roadmap for fiscal consolidation.

The panel had recommended an immediate hike in price of diesel by Rs4 per litre, of kerosene by Rs2 a litre and of LPG by Rs50 per cylinder. Thereafter, it suggested raising rates on a monthly basis till revenue losses are wiped off.

Officials and ministers refused to call the CCPA’s decision as deregulation but experts felt that this could be the beginning of such a course.

Moily said the decision to decontrol diesel was taken in June 2010 but was not implemented. “We have now given the liberty to oil marketing companies to go for small increases.

We have taken the first and decisive step. When it is to be totally deregulated, has been left to the oil marketing companies,” he said when asked whether today’s decision would amount to complete deregulation or partial deregulation.

Finance minister P Chidambaram refused to enter into a discussion on the issue.

The government had in June 2010 deregulated petrol pricing and had in-principal decided to decontrol diesel.

Though decontrolled, petrol rates have rarely moved in tandem with cost and state-owned oil companies have often acted on political counsel in deciding on rates.

The decision on diesel was never implemented.

Before yesterday’s decision, state-owned oil companies sold diesel at a loss of Rs9.60 per litre, kerosene at Rs32.17 a litre and LPG at Rs490.50 per 14.2-kg cylinder.