OMCs' hand in diesel rates part of Kelkar report: Expert

Gagan Dixit of Quant Broking explains on CNBC-TV18 that the government's decision authorising OMCs to make small and periodic changes in diesel prices is part of the recommendations submitted by the Kelkar Committee which suggested that hikes in diesel prices be small so as to avoid adversely affecting the economy.

Below is an edited transcript of the analysis on CNBC-TV18 Q: What do you make of the increase in the LPG cap and the absence of a hike in the subsidised prices? The oil minister says the government will lose about Rs 9,300 crore this fiscal. How much do you think it will add to FY14?
A: The base case estimates are around Rs 1,40,000 crore and we expect it to be further increased to around Rs 1,50,000 crore. The government should either raise LPG prices by Rs 120 per cylinder or hike diesel prices by around Rs 1-2 per litre to neutralise the adverse impact of the subsidies. Q: What do you make of the announcement authorising oil marketing companies (OMCs) to make minor and periodic changes in diesel prices? Does this imply that oil companies have the right to fix prices?
A: I think it appears to be more or less in line with Kelkar Committee recommendations submitted in September 2012 to the finance ministry which called for an initial hike of Rs 3-4 in diesel prices and that has already implemented by the government in October 2012. The recommendations also suggest small and phased increases in diesel prices to avoid an adverse impact on the economy. Q: As an investor what will you factor in a Re 1 hike every month?
A: I expect a Rs 5-7 hike on a full-year basis. For the past four years, an annual hike of Rs 4 has been the trend.