An expert panel has recommended to the government that diesel prices should be hiked by Rs 5 per litre, kerosene by Rs 4 a litre and cooking gas (LPG) rates by Rs 250 per cylinder immediately to cut fuel subsidy bill by Rs 72,000 crore.
The panel, headed by former Planning Commission member Kirit S Parikh, suggested that after the price hike, oil companies should be given a fixed subsidy of only Rs 6 per litre on diesel and any difference between cost of production and retail price should be passed on to consumers.
Also, it suggested that the number of subsidised cooking gas cylinders supplied to households in a year should be cut to 6 bottles of 14.2-kg from the current quota of 9.
Parikh, the author of the report, said the Rs 6 per litre subsidy on diesel should be liquidated in one year to make the fuel completely deregulated or free from price controls.
If implemented, the recommendation will reduce fuel subsidy by Rs 30,250 crore during the reminder period of the current fiscal from a projected Rs 138,435 crore.
Oil firms currently sell diesel at a discount of Rs 10.52 a litre, kerosene at Rs 38.32 and LPG at Rs 532.86 per cylinder. Together, they would result in a revenue loss of Rs 138,435 crore this fiscal. This has to be met through a combination of government cash subsidy and contribution from upstream firms like ONGC.
The expert panel favoured continuation of existing pricing principles for controlled petroleum products despite a dissenting note from the representative of the Finance Ministry on the committee.
The Finance Ministry pushed for refiners being paid the equivalent of rates they would have realised if diesel, kerosene and LPG were exported. The export parity pricing, it felt would cut its subsidy outgo by Rs 13,000 crore.
Parikh said after discounting the quality specification of fuel exported by private refiners, the difference between the EPP and currently practiced trade parity pricing was only Rs 108 per kilolitre or 1.5 per cent.
"No country uses export parity pricing... and there is very little difference between export parity pricing and trade parity pricing," he said.
Accepting the recommendations in toto on the eve of assembly elections in states like Delhi, Rajasthan and Madhya Pradesh may be difficult, with Oil Minister M Veerappa Moily saying that the suggestions needs to be examined throughly before they are implemented.
"I do not want to pass a value judgement on the recommendations. The report has been presented to me just now. There is a process involved (in accepting and implementing such reports). We will decide on it in consultation with the Finance Ministry," he told reporters here.