No hike, for now
Mumbai   19-Aug-2010

A week of Opposition-led products in parliament over price rise was enough for the UPA government to change its back. On 25 June, when the centre freed petrol prices from state control and raised the prices od diesel.LPG and kerosene, oil companies had category declared that they would announce a fresh price every month, which would be market-linked. But over a month has passed and there has been no change.

Even though the India basket of crude has been stable for the past month, hovering between $ 75.15 and $ 74.35 per barrel, the government has advised the oil psus not to tamper with the petrol pricing. This comes in the wake of the Opposition intensifying its criticism of the government over the spiralling price rise.

The opposition had disrupted proceeding in both the houses of Parliament as soon as the monsoon session began, demanding a vote to censure the government for its failure to control prise rise. After a great deal of haggling, the Opposition came around to discussing the issue in an agreed formulation that saw the presiding officers expressing the sense of both Houses urging the government to take adequate measures in tacking the prise rise.

But even then, the Opposition criticism was unrelenting with senior leaders like Sushma Swaraj saying that woes of the people had been compounded by the fuel- price hike. Earlier, only the price of essential commodities like wheat flour, rice and pulses were skyrocketing, but now the prices of LPG and kerosene had also gone up.

The Centre decided to free petrol prises from state control and raised the prices of diesel, LPG and kerosene to bring down the fiscal deficit and help oil refineries recover losses for selling fuel below cost. It was announced that the new in the global market.

Petroleum ministry officials had then indicated that psus would undertake the petrol price revision, either way, even if there was a minor change in the price of international crude. That would send a clear signal that the government was determined to free petrol (and later diesel) prices.

But that did not happen on 25 July and the psus had to maintain the status quo. Business India has learnt that petroleum and natural gas minister Murli Deora has been under pressure from the Congress party bosses for failing to hard-selt the need to revise the fuel price increase. The PSUs have been asked to hold their horses.

The message has not been lost on the PSU bosses. "There is no immediate plan to revise petrol prices as the international prices have not fluctuated significantly. The Indian basket of crude is stable at $ 74-75 per barrel. So, there is no immediate need to change the prices," says B.M. Bansal, CMD, IndianOil.

A top government source said, "A policy decision to free petrol prices may have been taken but given the political implications of this move, if has to be implemented cautiously."

Oil firms have been informally told to keep the prices unchanged for another two months, even if there is volatility in the international market. That's when the monsoon will help cool down inflation and bring down prices. Senior government economists have predicted that inflation would be down to 5-6 percent by the end of this year.

Price revision

But analysts are perturbed by the development. They say that the revision in petrol prices, even by a measly 50 paise, would have sent a clear signal that the government was committed to free pricing of petrol and diesel. Buckling under Opposition pressure to postpone the decision has given rise to doubts abot the UPA'S commitment to free diesel soon, as was promised.

Analysts expect the impact of the petrol price deregulation to be felt on the under- recoveries by the PSUs only by the next quarter. Which the government playing it safe by affecting only a one-time increase in the retail prices of diesel, kerosene and LPG, they estimate total under- recoveries to remain at a significant Rs 63, 700 crore for the current financial year.

Oil prices in India have a history of being hijacked by politics. The NDA had frees oil prices in 2001, but internal dissent ensured that the reform was short-lived. As for the UPA, even when crude prices surged to a record $ 140-a - barrel- level in 2007-08, the state-owned firms were not allowed to increase prices.