The phenomenal increase in price of crude and petroleum products in the international market have assumed alarming proportions in recent months. The average price of Indian basket of crude oil during April-October this year has been $70.87 per barrel as against $62.46 during the corresponding period last year registering an increase of 13.4 per cent.

This steep increase in prices is having a major impact on the state-owned OMCs and the Indian economy as India imports nearly 72 per cent of its crude oil requirement.

As per petroleum ministry’s estimates, the three state-owned OMCs—Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited --are making a loss of Rs 4.94 on sale of every litre of petrol, Rs 6.50 per litre on diesel, Rs16.42 a litre on kerosene and Rs 207 per cylinder on LPG.

The Congress-led UPA government-- faced with political compulsion in view of forthcoming assembly elections in Gujarat and Himachal Pradesh-- is unwilling to take any political risk by enhancing the fuel prices.

In an apparent bid to buy time, the prime minister has constituted a Group of Ministers to go into the issue of revision of retail prices of petroleum products. The GOM has been asked to come out with recommendations within a month’s time. The petroleum ministry on its part has suggested either to marginally raise petrol and diesel prices or cut duties on petroleum products.

But Finance Minister P Chidambaram is not in favour of any duty cut as such an exercise would have a bearing on revenue collection when the government is faced with daunting task of mobilising resources to fund its mega size populist socio-economic projects.

Only last month, the government while making no change in retail prices devised a package to take care of two-third of the Rs 55,000 crore revenue loss being incurred by the public sector oil firms.

As per the principle of equitable burden sharing among the different stakeholders and in line with a similar exercise undertaken last year  42.7 per cent of the total under-recoveries would be borne by the government in the form of oil bonds. In figurative terms the oil bonds proposed to be issued to OMCs amount to Rs 23,457.24 crores.

Besides oil bonds, the government has also decided to extend budgetary subsidy on domestic LPG and PDS kerosene for three more years. The government has provided about Rs 2,680 crore from the budget to subsidise the mass-consumed cooking fuels.

This package was evolved on the basis of Indian basket of crude oil prevailing at $70 per barrel. But with crude prices crossing $96 the compensation is now being considered inadequate. The OMCs may incur a revenue loss of Rs 70,000 crore if global crude oil prices were to remain above 90 dollars.

The issuing of oil bonds or tinkering with duty structure may work up to a point. It is being felt that in the overall interest of the economy, the government should adhere to fiscal prudence and not shy away from putting some burden to consumers.