Shocker! Diesel costlier by Rs 3/litre; LPG Rs 50 / cylinder

Get ready for a major shock! Diesel -- from Friday midnight -- will cost Rs 3 per litre more, while the price of cooking gas cylinder has been increased by a whopping Rs 50 per cylinder.

The price of the poor man's fuel -- kerosene -- too has been hiked by as much as Rs 2 a litre.

The decision to hike fuel prices was taken by the Empowered Group of Ministers headed by Finance Minister Pranab Mukherjee. The increase was announced by Petroleum Minister Jaipal Reddy in New Delhi late Friday evening.

Reddy also said that excise duty on diesel reduced from Rs 4.60 a litre to Rs 2 a litre. Customs duty on diesel has been cut from 7.5 per cent to 2.5 per cent, while the 5 per cent customs duty on crude has been abolished.

He said that the revenue loss to the government due to cut in excise and customs duties would be to the tune of Rs 49,000 crore (Rs 490 billion) for 2011-12.

The increase in fuel prices will see the public sector oil companies' under-recoveries decline by Rs 21,000 crore (Rs 210 billion), Reddy said.

This is the tenth hike in the price of fuel in just over a year. With this hike, inflation is likely to rise sharply once again.

-- With inputs from PTI

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Just a month ago, on May 14, in the largest-ever price increase of petrol, the state-owned oil companies hiked the price of petrol by Rs 5 per litre.

The revision in prices would come into effect from midnight on Friday. Any price increase is announced closer to this deadline to avoid hoarding by petrol pump owners, who have in the past shown a tendency to put up 'no-stock' signs so as to earn quick money by selling fuel they bought at the old price, after the new rates have come into effect.

With global crude oil prices rising and domestic public sector oil companies suffering huge losses due to fuel subsidy, the government was left with no option but to increase fuel prices.

With inflation already going through the roof, forcing the Reserve Bank of India to increase interest rates at the risk of slowing down the booming Indian economy, this hike in fuel prices will bring more suffering to the people.

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Efforts to control soaring prices and runaway inflation have not yielded any positive results for a long time and this major increase in prices of diesel, cooking gas and kerosene will add further fuel to the inflation fire.

Already reeling under rising inflation and high prices, the common man was given an unprecedented jolt. Although a fuel price hike was inevitable, significantly, the government had then held back the increase because of assembly elections in five states. Experts say that had fuel prices been hiked earlier, voters would have punished the UPA by voting against it.

With diesel prices rising, many major sectors will be badly affected. Among them are fast moving consumer goods, transport, textiles, automobiles, etc. This will have a cascading effect on the prices of general and essential commodities as everyone will pass on the burden to the common man.

Even as the Reserve Bank of India struggles to control rising inflationary pressure by tightening the monetary policy (in other words, hiking interest rates), the increase in the price of fuel will almost put paid to its efforts to control rising prices of all commodities.

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Vegetables and food prices have already gone through the roof and while the common man waits for the government to take steps to provide some succour, the fuel price hike promises to keep the common Indian in pain for some time to come.

Rising prices are like a fire feeding on itself. As they erode the incomes of wage-earners, they give rise to labour unrest.

That, in turn, brings down productivity leading to further inflation. Thus a vicious circle is established.

It's a tough time for the common people in India. Indians are gasping for breath as prices of essential commodities are spiralling out of control.

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With the United Progressive Alliance government deregulating the prices of petro-products, things have got even worse.

Prices of pulses have gone so high that many households have stopped consuming the protein-rich but almost unaffordable dal.

Earlier, the meeting of the high-power panel of ministers on raising fuel prices was put-off by a few hours during the day 'to study more options'. This followed an hour-long meeting Mukherjee had with Oil Minister S Jaipal Reddy at noon where various scenarios were discussed.

"We are working on more options (on fuel price hike and duty rejig as an answer to spiralling crude oil prices). A decision will be announced after the meeting," Reddy had announced.

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He, however, refused to divulge details of his discussions with Mukherjee and the options before the government. "I will not indulge in speculation," he said.

The brief postponement may also have been to take on board the opinion of the ruling Congress party's highest decision making body, the Congress Working Committee, which met later in the day.

Raising diesel, domestic LPG and possibly kerosene rates is a politically sensitive decision and the government wanted to take all sections on board before taking a decision.

Earlier in the day, Reddy had stated that his ministry had not made any specific proposal on the quantum of increase or the duty cut desired.

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He said only a detailed analysis of the scenario developing from a spike in rates of international crude oil, on which India depends on to meet more than three quarters of its energy needs, has been submitted to the EGoM.

"My ministry has given no proposal (on fuel price hike or duty reduction) to the EGoM," Reddy had told PTI here. "We have offered an analysis and the same will be discussed at the EGoM meeting."

State-owned oil firms are together projected to lose a whopping Rs 1,66,712 crore (Rs 1,667.12 billion) in revenues this fiscal on selling diesel, domestic LPG and kerosene at government-controlled rates, which are way below the market price.

The EGoM deliberated on measures including an increase in the retail price, duty reduction and government subsidy, to tackle this loss.

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Oil firms currently lose Rs 15.44 per litre on diesel, Rs 27.47 per litre on kerosene and Rs 381.14 on the sale of every 14.2-kg domestic LPG cylinder.

Besides Reddy, the EGoM headed by Finance Minister Pranab Mukherjee includes Agriculture Minister Sharad Pawar, Power Minister Sushilkumar Shinde, Road Transport Minister C P Joshi, Chemical and Fertiliser Minister M K Alagiri and Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Pawar and Alagiri did not attend the EGoM meeting as they were not Delhi.