Fuel prices hiked to avoid fiscal system collapse: PM

By Abhijit Neogi, CNBC-TV18

The Minister for Petroleum and Natural Gas, Murli Deora has informed that petrol prices have been hiked by Rs 2 and diesel prices have been raised by Rs 1 with effect from midnight today.

Commenting on the fuel price hike, Prime Minister Manmohan Singh said it is a marginal increase. "We need to look at the country's interest. The fiscal system will collapse if not made sensitive to rising international oil prices. India also needs to consider the additional burden on the import front."

Meanwhile, the Oil Secretary, MS Srinivasan has said that annualised benefit for oil companies stands at Rs 6,500 crore. The share of oil bonds in underrecovery will go  up to 57%, he added. The Government is likely to increase the share of oil bonds to 52% of under recoveries, CNBC-TV18 reports.

The Petroleum Minister had actually proposed more hike at about Rs 4/litre for petrol and Rs 2/litre for diesel. Since that’s not happened, the quantum of the hike is just Rs 2/litre for petrol and Re 1/litre for diesel. The government had to actually increase the price of oil bonds in undercover for the industry; which will take it to Rs 71,000 crore till the end of the fiscal. As per the original subsidy sharing formula - 42.7% of that would be covered by all bonds. The government has now actually increased that to about 57%; it’s not a steep hike but a marginal hike in the oil prices.