New Delhi, Dec. 23: The government is likely to increase the price of diesel by Rs 2 a litre and domestic LPG by Rs 50 per cylinder, if it raises the number of subsidised cylinders in a year to nine from six.
Policymakers want the move to raise the subsidy cap on cylinders to be revenue neutral — hence the steps to raise diesel and LPG prices.
“Different options are being considered… effort is to make the increase in the number of subsidised LPG cylinder revenue neutral. A cabinet note on different options will be present soon,” a senior oil ministry official said.
The government’s decision to cap subsidised cylinders to six had evoked criticism and protests even from those within the Congress.
A major embarrassment followed when oil minister M. Veerappa Moily incurred the wrath of the Election Commission with his remark on raising the cap on cylinders days before the Gujarat polls.
Oil ministry officials have held discussions with the finance ministry to assess the impact of raising the LPG cap. The government will have to provide an additional Rs 9,000 crore annually if the cap is raised.
Officials said the finance ministry was not in favour of taking on the additional subsidy burden given the tight fiscal situation.
“A Rs 2 hike on diesel prices is justified, especially when the consumers want three additional gas cylinders in a year. The finance ministry is not opposed to raising the cap on subsidised cylinders, but is not ready to bear the additional subsidy burden. So the oil ministry proposes to make it revenue neutral through several options,” the official said.
Industry data indicate that subsidised LPG consumption has slumped 3 per cent in November. Officials said it could be because of the reduction in the diversion of domestic cylinders for commercial use.
State-owned oil firms lose Rs 10.03 per litre on diesel, Rs 30.93 per litre on kerosene sold through PDS and Rs 520.50 per domestic gas cylinder.
Prime Minister Manmohan Singh recently indicated the need for targeted subsidy to bring the economy back on the 9-per-cent-growth path.
His remarks on energy subsidy are in tune with the fiscal consolidation road map laid out by the Kelkar Committee, which was made public on September 29.
The panel had recommended cutting down half of the diesel per unit subsidy by the end of this fiscal and the remaining over the next year. On LPG, the report suggested complete elimination of subsidy by 2014-15 starting with 25 per cent reduction this fiscal and the remaining 75 per cent over the next two years.
Weeks ahead of the panel’s recommendation, the government hiked diesel prices by Rs 5 a litre and introduced a quota of six subsidised LPG cylinders per year.
According to a study by the finance ministry, diesel consumption will reach 2,681 crore litres with business as usual or no hike in prices; it will come down to 2,445 crore litres with a 30 per cent rise in prices and will hover around 2,549 crore litres with a partial 10 per cent increase in prices in the next three years to 2015.
In its mid-year economic analysis, the finance ministry said an increase in the cost of diesel would lead to higher prices immediately, but a lower price rise in the longer run as the fiscal deficit is reduced.
The oil subsidy outlay after the first supplementary demands for grants is about Rs 72,260 crore during 2012-13.