Petrol Price Hike - Inevitable

New Delhi, February 14: Virtually ruling out a rollback of the petrol price hike, Prime Minister Manmohan Singh said Thursday that the system would "collapse" if the government continued to subsidise things.

"You have to look at the country's interest," he told reporters at a function to mark the release of the Business India Year Book.

 He said the price hike had been necessitated in a situation where crude import prices were rising. "It is a marginal increase," he said on being asked whether or not the government would roll back the hike in the wake of the stout opposition to it by the Left parties and the Opposition.

 "If you go on subsidising, the fiscal system will collapse," he said.

 The Union government had Thursday decided to increase petrol prices by Rs.2 and diesel by Re.1, triggering widespread criticism, with the Left parties and the BJP saying it would hit the common man hard.

 Petrol and diesel would be costlier by Rs two and Re one a litre respectively from midnight tonight, with the government taking a decision to minimise the losses of public sector oil firms.

 The decision of the Cabinet Committee on Political Affairs, whose meeting was chaired by Prime Minister Manmohan Singh, will benefit oil companies to the tune of Rs 840 crore.  

The total under-realisation of state-run oil companies this fiscal is estimated at around 71,808 crore. The government also decided to increase issuance of oil bonds, a tool to partly compensate the companies.

Presently, 42.7 per cent of the under-realisation (loss due to selling fuel below cost price) on petrol, diesel, LPG and kerosene is met by the government through issuance of oil bonds. This will now be increased to 56-57 per cent.  

Another 33 per cent is borne by upstream companies like ONGC and GAIL, while the remaining has to be borne by the retailers - Indian Oil, Bharat Petroleum and Hindustan Petroleum. The CCPA comprises representatives from all political parties that form part of the ruling UPA alliance.  

Petrol and diesel prices were last raised in June 2006, when crude oil was at 67 dollars a barrel. It is at 92 dollars a barrel this year. LPG prices were last raised by Rs 20 per cylinder in November 2004 when crude was at 34 dollars a barrel. Kerosene prices have not been changed since 2002 when crude was at 23 dollars per barrel.