ET: Petrol Prices May Be Raised By Rs 10 to Rs 16 a litre. Expect In

Petrol, a fuel used primarily by urban consumers, could soon be selling at
market prices. This would mean an increase of Rs 10-16 per litre at current
prices.

Officials told ET that a proposal to sell petrol at market prices, while keeping
diesel, cooking gas and kerosene at subsidised rates was under consideration.
According to a Union minister, some Cabinet members are in favour of
market-determined petrol prices. The Cabinet is likely to take up the proposal
at a meeting soon, which will discuss a bailout package for state-owned oil
marketers.

“With crude oil prices breaching $132/barrel, nothing can be ruled out in the
domestic market. Some members in the Cabinet favour prices of petrol to be
market-determined, while regulating prices of diesel, cooking gas and PDS
kerosene to safeguard the poor and avoid stoking inflation,” he said.

“I strongly believe that subsidising petrol not only encourages its misuse but
also discourages use of public transport. Having a market-determined price would
help in the survival of oil cos without any significant inflationary impact. The
poor, anyway, don’t use personal vehicles,” added another Cabinet minister. He
added that there were other members with similar views.


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The idea has also been mooted by the working group on petroleum & natural gas
sector for the formulation of the XI Plan. In its report, the group chaired by
petroleum secretary MS Srinivasan had said: “In the case of both petrol and
diesel, regular and small adjustments in price are recommended, failing which we
may be forced to correct prices in one go, bringing about a price shock.
Furthermore, if we are to reduce consumption of oil products, price signals must
be transmitted to consumers so that they can make adjustments on their side as
well.”

While there is a case for petrol, a similar move is not recommended for diesel
due to its impact on inflation, the member said. According to an internal oil
ministry exercise, petrol has insignificant weightage in the wholesale price
index (WPI). The WPI consists of three major groups — primary articles (with
22.02% weightage), manufactured products (63.75% weightage) and fuel, power,
light and lubricants (14.23% weightage).

The third group is subdivided into three categories with following weightage
assigned — coal mining (1.75%), electricity (5.49%) and mineral oil (6.99%).
Among the mineral oil category, diesel has the highest weightage of 2.02%,
followed by LPG (1.88%). Petrol has only 0.88% weightage, an official source
said.

A senior official in the oil ministry has said the Cabinet would meet soon to
help public sector oil companies — IOC, BPCL and HPCL — offset losses. “The
Cabinet agenda is yet to be finalised and it will contain all options including
a price increase and a duty rejig. The oil ministry has so far, not specified
any quantum of fuel price hike. It is a political decision and it is up to the
Cabinet to decide,” he said.

Nothing in this article is, or should be construed as, investment advice.

Rohit