Petrol price hiked by Rs2.35 per litre and diesel by 50 paisa, excluding state levies, effective midnight today

The government on Saturday raised the price of petrol by Rs2.35 per litre and diesel by 50 paisa a litre, excluding state levies.

The increase in rates, which are excluding local sales tax or VAT, are effective from Sunday, Indian Oil Corporation (IOC), the nation's largest oil marketing company, said.

Earlier, M Veerappa Moily, minister for petroleum & natural gas had made a case for an appropriate increase in price of diesel, kerosene sold under public distribution system, and domestic LPG.

Moily, in a letter sent to prime minister Manmohan Singh, and finance minister P Chidambram had urged them to take corrective steps to check the deteriorating financial health of the oil marketing companies (OMCs) due to mounting under-recoveries (loss incurred by companies) for selling these products at a controlled price.

"…consistent rupee depreciation has a severe impact on the under-recovery of the OMCs and consequently on their financial health. If the present position persists, the total under-recovery would reach to a level of Rs1.80 lakh crore in the current financial year as compared to Rs1.61 lakh crore during the financial year 2012-13," Moily said in letters separately written to the prime minister and finance minister.

The Cabinet Committee on Political Affairs on 17th January decided to increase the diesel price in the range of 40 paisa to 50 paisa a litre per month (excluding VAT), sell diesel to bulk consumers at market price, and cap on subsidised domestic LPG cylinders to nine annually.

In spite of seven increases in diesel price since 18 January 2013 totalling Rs4.25 per litre, the current under-recovery is Rs12.12 a litre. At present, the companies incur a monthly under-recovery Rs6,204 crore on the sale of diesel. “At the current level it will take around 20 months to eliminate this loss provided there is no further increase in the international price of diesel and rupee-dollar exchange rate, the Minister said.

The monthly loss on PDS kerosene is Rs2,398 crore, and domestic LPG Rs3,058 crore.

However, with the significant depreciation of rupee against dollar since April 2013, the under-recovery burden is likely to become much higher, the Minister said adding that it is estimated that every rupee depreciation against dollar increases under-recovery on sale of diesel, PDS kerosene, and domestic LPG by about Rs7,900 crore annually.

"If we consider the average price of India crude basket at $110 a barrel and the average exchange rate at $66 for the balance financial year, the under recovery of OMCs will increase to an unsustainable level of Rs1.68 lakh crore. If the price of international crude oil increase to $115 a barrel the under-recovery will reach to around Rs1.81 lakh crore," the Minister said.

The upstream assistance – ONGC, Oil India – and GAIL (India) is expected at Rs70,500 crore, The remaining under-recovery of Rs97,500 crore can be met from either the Budgetary support from government or appropriate increase in fuel price, the Minister had said.