The Manmohan Singh government has finally bitten the bullet. It has increased the price of diesel by Rs 5.63 per litre and capped the number of subsidised LPG cylinders for each family to six a year.
The move, aimed at cutting the losses of oil companies and reducing the subsidy burden on the government, has wreaked havoc on the monthly budget of ordinary households. It means more pain for the common man as he grapples with price spike across the daily purchase vector. For a family using diesel cars and gas cylinders, the cost of living just went up drastically. If the family has two diesel cars, the hike means additional Rs 4,000 to Rs 5,000 expenditure on fuel per month.
But from an economic standpoint, the decision was imperative as oil marketing companies were bleeding profusely. Indian Oil registered a net loss of Rs 22,451 crore in the first quarter of this financial year. Similarly, Bharat Petroleum and Hindustan Petroleum piled up losses of Rs 8,840 crore and Rs 9,250 crore, respectively. The daily loss on subsidised fuel for the oil marketing companies is a scary Rs 560 crore.
The price of diesel in Delhi has increased to Rs 46.95 per litre from Rs 41.32 a litre. However, branded diesel such as Xtra Mile will be sold at the market price, which could be around Rs 15 more than normal diesel and, in fact, quite close to the price of petrol.
The number of subsidised LPG cylinders available to each domestic household till March next year (end of current financial year) will be three cylinders. While subsidised LPG will continue to be available at Rs 399 per cylinder in Delhi, the market rate of LPG cylinders at non-subsidised rates will be notified by the oil marketing companies on a monthly basis.
Indian Oil, Bharat Petroleum and Hindustan Petroleum claim that they are currently losing Rs 347 on each LPG cylinder sold to households. Going by this estimate, the current market price of an LPG cylinder in Delhi would work out to Rs 746.
The government had decided not to increase the price of petrol although the current under-recovery on petrol is about Rs 6 per litre. The consequent loss to the oil companies will be offset through a reduction in excise duty on petrol by Rs 5.3 per litre.
The difference in the price of petrol and diesel will now come down from around Rs 27 a litre to around Rs 21 per litre. This differential was being exploited by those driving expensive diesel cars, leading to the increasing dieselisation of the economy. Over the last one year, the passenger car market has seen an upheaval with diesel cars accounting for 50 per cent of the market.
According to the official statement, the price of diesel has been increased by Rs 5 per litre, excluding VAT which is charged by the state governments. Of the hiked amount, Rs 1.5 per litre is on account of an increase in excise duty. The remaining Rs 3.5 per litre will reduce the underrecovery of oil marketing companies by about Rs 15,000 crore in the next six months.
The restriction in the supply of subsidised LPG cylinders to each consumer will help in reducing the under-recovery of the oil companies by about Rs 5,300 crore for the remaining part of the financial year. Any number of cylinders will be available over and above the cap of six cylinders at market rate.
The decision, though inevitable, has exposed the Congress to the tirade of the Opposition and allies alike. Most Congress leaders have gone underground to avoid media queries. A senior party leader declined to comment saying "we do not have the details" while some others switched off their mobile phones.
UPA ally Trinamool Congress (TMC) is set to lead a street rally in Kolkata on Saturday demanding a rollback of the hike. "We are unhappy and astonished that inspite of the formation of the UPA coordination committee after a long time, such a decision was taken without consulting us," said West Bengal chief minister and TMC leader Mamata Banerjee.
She said she is ready to withdraw support to the UPA government but that would not serve the purpose. "If people do not mind, I will be most happy to withdraw support (to the UPA). If I withdraw support then other parties will provide support to them. And, then ask why we left the UPA which led to its collapse. People had misunderstood us when we had withdrawn support earlier. Therefore, we are having a detailed discussion in the party on these issues," she said.
DMK leader T.R. Baalu also said "we will oppose the hike". Describing the hike in diesel prices as a "cruel joke and a mortal blow" to the common man and farmers, the BJP accused the government of conspiring with the petrol "mafia" and said it will take to the streets to oppose the hike.
Senior leader Yashwant Sinha said the hike will have a cascading effect on prices and will contribute further to inflation. "Steep increase in diesel price is going to hit the common man, farmers and labourers. The Congress has sprayed diesel on coal fire," said party general secretary Ananth Kumar.
CPM leader Basudeb Acharia said: "This is an added burden on the people. We had suggested reduction in the taxes on petroleum products but instead the government has increased the rates. We condemn this move."