The government hiked the fuel prices to raise Rs 21,000 crore but it also slashed
customs and excise duties on petroleum products, sacrificing Rs 49,000 crore a year.
The new prices will be
effective Friday midnight. The long-pending politically sensitive decision was taken at a meeting of the Empowered Group of Ministers (EGoM) headed by Union Finance Minister Pranab Mukherjee.
Under-recovery
Petroleum Minister Jaipal Reddy said the government took the decision to cut down burgeoning under-recovery of oil marketing companies.
The under-recoveries of companies which stood at Rs 1,71,140 crore will now come down by Rs 21,000 crore after Friday’s decision, Reddy said.
Describing the hike as modest, the petroleum minister said the meeting also decided on elimination of 5 per cent customs duty on crude oil and all petroleum products that will result in a revenue loss of Rs 26,000 crore for the government for the full fiscal year.
The excise duty on diesel has been reduced from Rs 4.60 a litre to Rs 2 a litre which will entail a revenue loss of Rs 23,000 crore during 2011-12.
No further cut
He said the excise duty could not be cut any further as the special excise duty and the additional excise duty have been earmarked for the Central road fund and the educational cess. On both these accounts, the government will incur a loss of Rs 49,000 crore.
The hike works out to 7.9 per cent for diesel, 14.4 per cent for cooking gas and the highest—22 per cent—in the case of kerosene.
The decision on kerosene price hike comes exactly a year after when the government had raised its rates by Rs 3 a litre. Reddy said oil marketing companies suffer losses of
Rs 13.72 per litre of diesel, Rs 26.16 per litre of kerosene and Rs 381.14 per LPG cylinder.
As a result, on a daily basis, Indian Oil, Hindustan Petroleum and Bharat Petroleum incur a total loss of Rs 456 crore on the sale of the three petroleum products. Even after the price hike and duty cuts, the oil marketing companies will still be losing Rs 1,01,140 crore for the current fiscal.
Interestingly, the current hike comes just a day after the government announced that India’s food inflation had soared to a nearly 10-week high of 9.13 per cent for the week ended on June 11.