PMEAC for hiking diesel price, cut in LPG cylinders

Raise the price of diesel and restrict supply of subsidised LPG cylinder in a year to four per family, Prime Minister's Economic Advisory Panel suggested on Friday.

The 2012-13 Economic Outlook released by the Prime Minister's economic Advisory Council (PMEAC) Chairman C Rangarajan also suggested government could contemplate raising the diesel price in one or more steps.

"Priority consideration may be given to a suitable increase in the price of diesel in one or more steps," the report said while making a case for reduction of subsidy bill to contain fiscal deficit.

The government has not been able to implement its decision to deregulate diesel prices because of opposition from various quarters. It had freed petrol prices in 2010.

As regards supply of subsidised LPG cylinders, the report said it should be restricted to four per year per family.

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It suggested "a cap on the level of consumption of subsidised domestic LPG close to what is currently being consumed by poorer households, i.e. 4 cylinders".

The report said the extent of under-recoveries in diesel is Rs 12.13 per litre and the subsidy per domestic LPG cylinder is Rs 231 as on August 20, 12.

A Rs 1 increase in diesel price would result in a subsidy reduction of about Rs 7,800 crore, the report said.

It further said 29 per cent of LPG subscriber households use upto 4 cylinder refills annually and if a cap of subsidised LPG refills is kept at this level, the corresponding reduction in subsidy would be roughly Rs 18,000 crore.

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The government has budgeted a petroleum subsidy of around Rs 43,000 crore for the current fiscal, but with the huge under-recoveries of the oil marketing companies, the subsidy burden is expected to go up.

"Supplementary provision of subsidy in excess of Rs 70,000 crore would be needed unless the level of subsidy is curtailed.

"Such a large subsidy provision would be a great strain on the fiscal system and would also have significant adverse impact on inflation," it added.

In view of rising energy prices and urgency to contain fiscal deficit, the report suggested energy pricing policies to be shaped by the expectation that fossil fuel prices will continue to rise at a pace faster than other prices.

Crude oil prices in the international market, which had moderated to $90 a barrel, has again started firming up and reached $115 a barrel.