Meena: Gauging impact
New Delhi, Feb. 22: The periodic hike in diesel prices will have a small and muted impact on inflation and the common man, the government today said.
“Since the increase will be small, its impact on retail customers and inflation will remain small and muted,” minister of state for finance Namo Narain Meena informed the Lok Sabha.
Last month, the government had allowed oil companies to make small hikes in the price of diesel from time to time, following which the prices have been raised twice.
While petrol prices were hiked Rs 1.50 per litre, diesel rates were raised 45 paise on February 15. Earlier, on January 17, the diesel price was hiked 50 paise a litre.
Inflation in January fell to a three-year low of 6.62 per cent. However, the impact of the increase in fuel prices in February will be reflected in the inflation figures next month.
Diesel has a weightage of 4.67 in the wholesale price index, the highest among the 670 commodities in the index.
ICICIdirect in a research note said, “While the staggered increase in diesel prices will add to inflation, the index may not completely adjust for the higher increase in bulk diesel prices and for the increase in the average price of LPG cylinders.
The overall global slowdown will keep crude prices range bound, thereby keeping prices of decontrolled fuel in check. Fuel inflation, therefore, will ease further.”
Meena also said prices of petroleum products must be aligned with global rates.
“This may not be possible immediately, but it can be achieved by the end of the 12th Plan for diesel and petrol,” he added.
According to Meena, although steps have been taken in the first year of the 12th Plan (2012-17) to adjust diesel prices and cap the subsidy on LPG, this has not eliminated the under-recovery of oil companies.
“The increase in under-recoveries of OMCs (oil marketing companies) is adversely affecting the financial position of OMCs and may affect mobilisation of funds for new projects during the 12th Plan period,” Meena said.
Indian Oil, Hindustan Petroleum and Bharat Petroleum together are projected to end the fiscal with under-recoveries of around Rs 1,60,000 crore.