Petrol bomb to drive up inflation

The government decided to decontrol petrol prices from Friday midnight and simultaneously raised the prices of key auto and cooking fuels — petrol, diesel, LPG and kerosene. The prices of petrol, diesel and kerosene have been raised by Rs 3.5 per litre, Rs 2 per litre and Rs 3 per litre respectively. An LPG cylinder will now cost an

additional Rs 35. The price of diesel will be decontrolled in stages. This is the third hike in fuel prices since February this year. The government’s move to deregulate petrol prices, and later diesel prices, means the rates of these two products will rise and fall in tandem with international crude oil prices. However, there is no clarity yet on the price revision mechanism.
Petroleum secretary S. Sundareshan said the government will soon decide the frequency and mechanism. The empowered group of ministers (EGoM), under the chairmanship of Union finance minister Pranab Mukherjee, has also decided to eventually decontrol diesel prices at a later stage. This means diesel prices could increase a little more in the coming weeks or months.
Mr Sundareshan said that in case of a high rise and volatility in international prices the government “will suitably intervene in the pricing of petrol and diesel”. The hike in petroleum products is likely to push inflation, which is already in double digits, by one per cent, according to Citi India.
The increase in fuel prices met with strong criticism from some UPA allies and Opposition parties. Railway minister Mamta Banerjee, a member of the EGoM which took the decision on the fuel price hike, stayed away from the meeting. “I had met the finance minister yesterday to convey my view. Our party does not support the hike because kerosene, LPG and diesel are directly linked with the common people’s kitchens. It also affects farmers,” said Ms Banerjee. But she said her party has no intention of withdrawing support over this issue. Petroleum minister Murli Deora said the NCP and DMK were “cooperative”. Mr Sundareshan said that despite the hike PSU oil marketing companies will still suffer a loss of Rs 53,000 crores in the current fiscal. The petroleum secretary also claimed that the increase in petroleum prices will be “easily” accommodated by consumers. “It is estimated if the petrol price is market-driven, an average user of a motor car will not be spending more than Rs 190 extra every month,” said Mr Sundareshan, adding that kerosene prices have been increased after eight years. The Kirit Parikh Committee on fuel pricing had in its report in February recommended freeing petrol and diesel prices and hiking the price of LPG by Rs 100 per cylinder and kerosene by Rs 6 per litre.

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