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May 10, 2011, 08.30 PM IST | Source: CNBC-TV18

Sporadic price hike in petrol likely tomorrow: Kirit Parekh

Kirit Parekh, author of the report on fuel price deregulation, expects to see a fuel price coming out of tomorrow's EGoM meet.

Kirit Parekh, Member, Planning Commission

Kirit Parekh, author of the report on fuel price deregulation, expects to see a fuel price hike coming out of Wednesday's Empowered Group of Ministers (EGoM) meet. "There could be a sporadic price hike in petrol tomorrow," he said adding, "There is also a possibility of some reduction in duties on diesel."

The EGoM chaired by Finance Minister Pranab Mukherjee will be meeting to discuss the health of the state-owned oil marketing companies.

Besides discussing a hike in diesel prices, and reverting to the deregulated price regime for petrol, the EGoM will also discuss how the oil marketing companies (OMCs) balance sheet can be cleaned up once and for all by rolling out a comprehensive reform agenda for LPG and kerosene.

There could also be a cap on the number of cylinders that are available to beneficiaries at the subsidised rate. According to Parekh limiting the number of cylinders will be difficult to implement. “The government decision will be influenced by political pressures,” he said.

Here is the verbatim transcript of Parekh's interview with Udayan Mukherjee and Mitali Mukherjee on CNBC-TV18. Also watch the accompanying video.

Q: We have an EGoM meeting tomorrow. What are your expectations?

A: I am expecting some increase in prices. However, I must say that I am not expecting a liberalisation of the diesel prices. I do expect some increase in prices will take place. I think the government has not shown that it’s willing to go for liberalising the prices. As we can see, even in the petrol case, though the prices are liberalised, they’ve nudged and determined more by government than by the market. 

Q: There is some talk that we might cap the number of LPG cylinders per family and there could be a small starting step in addressing those issues where prices cannot be raised for political reasons. Do you expect anything of that to start?

A: I personally feel that just keeping limits of cylinders is going to create a lot of administration [problems] and management would be quite difficult. It is lot simpler to raise prices.

The rich in the country, by and large are the ones who consume LPG, can certainly pay a higher price. If you are going to say, “I want it to restrict to six cylinders per household per year at lower price,” then the price at which the remaining cylinder should be charged should be substantially raised, They should be made completely market determined, then it may be worthwhile a little bit — worthwhile to undergo the administrative cost for doing that.

But if you are going to raise the price for cylinder by only Rs 50 for above quota, then it is not worth it.

Q: So what exactly do you think they are going to say on diesel?

A: How can anyone predict what the government at the GoM is going to say? One can only say one would like to see. Clearly it is very difficult to say what the GoM is going to agree to. There has always been concern with public reactions, the political noise that the vocal communities can make and so on.

It is not always that the decisions are taken purely on the basis of economic rationality. I do not have any predictions for tomorrow.

Q: Which is the odd part because after petrol the expectation was not so much for what they do with these household cooking fuels but that they would move very fast on diesel. You would say that you are resigned to the fact that there will be no talk of any decontrol on diesel?

A: I am not resigned to it but I don’t think tomorrow its likely to happen in the sense that even petrol price increases has been somewhat sporadic and has not followed, I mean the old oil-marketing companies, have not been completely free in fact though in law they are to set prices of petrol as they want. The government is overseeing how petrol prices are behaving.

On that basis, they would still want to control what is happening to diesel price and I don’t see diesel prices could be going to deregulating immediately. I think they could do many things for example they could just say we will cut down all the taxes on diesel, freeze the subsidy on diesel to Rs 2-3 per liter and make the price diesel free keeping the current market price at the same value as it is.

So it is possible to do things like that but I am not sure the government will take such a measure because this has been suggested many times but they have not acted on it.

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