Thursday, July 2, 2009

Decontrol petrol, diesel prices: Economic Survey

It is high time that petrol and diesel prices were decontrolled taking advantage of low inflation and global crude prices, the Oil Economic Survey said, while criticising the government for its "imperfect" handling of oil price hike.

The Survey made suggestions for sweeping reforms in the energy sector, including limiting subsidised cooking gas to domestic consumers to 6-8 cylinders per year.

Coming a day after the government announced an ad-hoc increase in petrol price by Rs four a litre and diesel by Rs two per litre that effectively buried all hopes of freeing auto fuel prices, the pre-Budget Survey said the entire rise in raw material price should be passed on to consumers.

The doubling of international crude oil prices to $70 a barrel since December had warranted Rs 5.82 a litre increase in petrol and Rs 3.62 per litre hike in diesel rates.

The message was clear, "Decontrol petrol and diesel prices", with the Survey saying that "as long as the domestic prices remain below the cost of import, demand would continue to grow accentuating the negative impact...

"At times higher inflation and on other occasions political imperatives have prevented a better alignment of fuel and fertiliser and food prices with the border/market prices."

In practice, the issues of prices were addressed somewhat "imperfectly" through a sharing formula that represented a mix of government subsidy, taxation of rents and some pass through, the Survey decried.

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