No decision taken on fuel prices at EGoM meet

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The Empowered Group of Ministers, headed by Finance Minister Pranab Mukherjee has failed to reach a decision on fuel prices today as all members were not present today. Sharad Pawar, Kamal Nath, and Mamata Banerjee did not attend today's meet.

Oil Secretary S Sundereshan said there is no hike in petrol prices for now. "A decision to increase fuel prices has been postponed. The Empowered Group of Ministers will meet within this month to take a call on the fuel pricing issue." He stated that the government is expected to review the proposal to raise fuel prices in 10 days time

EGoM said it needs to discuss the fuel price issue further. "The possible inflationary effect of fuel price hike was discussed." The revenue loss to the government stands at Rs 3.45 lakh crore in FY04-10, it stated.

Economist Kirit Parikh, who headed the Kirit Parikh Committee on deregulation of fuel prices, expressed his disappointment that the EGoM did not take a decision. The Kirit Parikh Committee had recommended freeing up petrol and diesel prices. It had suggested hiking kerosene and LPG prices by Rs 6 per litre and Rs 100 per cylinder.

Parikh hopes that EGoM will implement the committee's recommendations at its next meeting. "It is the right time to deregulate petrol, diesel prices."

According to him, the burden to consumers can always be eased by rationalizing taxes. "Post the 3G bonanza, there is enough elbow room to cut duties."

Earlier today, a number of senior government officials had said the time was ripe for an increase in fuel prices. Oil Minister Murli Deora and Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, called for a hike in fuel prices.

The issue is a political hot potato as the government is seeking a way to improve the financial health of state-run oil companies, while shielding the population from high inflation. Annual wholesale price inflation in April was at 9.59%.

The delay underscores the difficulties for the government coalition in pushing through financial reforms that entail painful adjustments to freer market but needed to improve government finances and free up cash for other programmes.

The move was being keenly watched as an indicator of the Congress Party-led coalition's appetite for financial reforms. It backed out a few months ago on freeing up farm prices after street protests. "There is pressure from allies, that seems to be the main reason. The Finance Minister himself had said some increase in petroleum product prices is necessary. If he is hesitant there must be pressure," DH Pai Panandikar of think tank RPG Foundation told Reuters.

Indian Oil Corporation, the country's biggest oil retailer, is currently suffering a daily revenue loss of Rs 100 crore on fuel sales in the domestic market, its Chairman BM Bansal said.

In FY10, India spent Rs 14,950 crore, or nearly 1.5% of all government expenditure, on oil subsidies, compared with initial estimates of Rs 3,110 crore.

On May 19, the government more than doubled the prices of natural gas produced by state-run firms. The base price of gas supplied by state firms will rise to USD 4.2 per million British Thermal Units, the same as the rate approved for Reliance Industries, bringing about near-uniformity in the cost of the fuel in India.

POLITICAL CONCERNS
Raising fuel prices would stoke inflationary pressures, already at levels uncomfortable enough for voters to slam Congress in the West Bengal municipal elections last week.

Oil industry officials say a move to market prices may increase petrol rates by 7% and diesel by about 9%.

The panel of ministers include two members from largest coalition allies Trinamool Congress and Dravida Munnetra Kazhagam (DMK), who face crucial state elections next year and would try to prevent or soften any unpopular hike. Both had opposed an increase in motor fuel prices in February.

Oil Ministry officials said they wanted a cautious approach towards diesel prices as it raises transportation costs and has a wider impact on inflation. "In one stroke we cannot raise diesel prices fully to market levels. Initially, the full burden of higher rates may not be passed on to the consumers," a senior official in the oil ministry told Reuters.

Another source said the rates of politically sensitive kerosene and cooking gas may also be raised but state control over prices of these fuels was likely to continue.

(With inputs from Reuters)