Diesel price hike of Rs. 5; allies want rollback

New Delhi: The government has raised the price of diesel by Rs. 5 per litre, prompting angry responses from allies Mulayam Singh Yadav and Mamata Banerjee, who have demanded a rollback. The price hike is aimed at reining in the fiscal deficit and staving off the threat of becoming the first in the BRICS group of emerging economies to be downgraded to junk.

The Cabinet Committee of Political Affairs headed by the Prime Minister left kerosene and LPG rates untouched. It also decided to restrict the supply of subsidised cooking gas to six cylinders per household in a year. The government says about 44% of the total domestic LPG consumers, who consume 6 cylinders or less each year, will not be affected by this decision.

While prices of petrol have been deregulated, diesel is a partially deregulated product. In the past two years, diesel prices have been hiked twice.

West Bengal Chief Minister and Trinamool Congress chief Mamata Banerjee said, “We want rollback. I am shocked. The matter is very serious and sensitive; we can’t compromise with the people’s issue. We will discuss in our party meeting and our plan of action.”

“If people do not mind, I will be most happy to withdraw support (to the UPA). If I withdraw support then other parties will provide support to them. And, then ask why we left the
UPA which led to its collapse. People had misunderstood us when we had withdrawn support earlier. Therefore we are having a detailed discussion in the party on these issues,” she added, announcing here party would hold a protest rally on Saturday.

The Trinamool’s lone minister in the cabinet, Mukul Roy, is not attending a cabinet meeting tomorrow that’s scheduled to discuss relaxation of Foreign Direct Investment (FDI) norms in airlines. Another UPA ally, the DMK, too has said it opposes the hike.

The Samajwadi Party, which provides external support to the UPA, also said it wants an immediate rollback. “The decision is ill-timed and will hurt the common man,” Uttar Pradesh Chief Minister and Samajwadi Party leader Akhilesh Yadav told NDTV.

Even the Congress says  it was not in favour of such a steep hike. General Secretary Digvijaya Singh said, “We are not in favour of a hike in diesel prices to such an extent because it hurts the farmers and common man. At the same time, there are some unpleasant decisions that have to be taken by the government by taking an overall view of what is best for the country.”

Reacting to the diesel hike, C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said the government had taken the right decision, and that fiscal deficit had to be contained. He told a private TV channel that an increase in diesel prices in India should help avert a credit rating downgrade for the country.

The BJP has slammed the government and senior leader Yashwant Sinha warned of mayhem in the economy. “This is going to cause undue hardship. Prices are not under control. This will lead to overall inflation,” he said. Prices, he said, could have been increased in small doses. The Left parties too want a rollback. Gurudas Das Gupta of the CPI said, “I have never seen such a massive increase. It will stimulate inflation and aggravate the economic slowdown, which will cost jobs. We will protest in every way we can.”

However, the price hike led to some respite for the oil companies. State-run oil marketing companies are losing Rs. 550 crore everyday on under-recoveries as a result of higher crude prices in the global markets. They make a loss of Rs. 17 per litre on diesel sales, Rs. 32.7 per litre on kerosene sales, and Rs. 347 per cylinder on cooking gas sales every day.

“Diesel accounts for 53 per cent of total subsidies. Oil companies are running a deficit of Rs. 6000 crore every month. We are committed to cutting petrol prices whenever possible. By reducing excise duty on petrol, we have brought down the gap between the prices between petrol and diesel. A narrow margin between petrol and diesel will be good for economy. If prices of petrol fall internationally, we will pass on the benefits,” said RS Butola, Chairman of the Indian Oil Corporation.

“This is a very good decision, and will certainly help oil companies and reduce the burden on the government in terms of subsidies. The reduction in the excise duty on petrol is good for us,” said Bharat Petroleum’s Chairman RK Singh.

The government subsidises the prices of diesel, cooking gas and kerosene to dampen inflation and protect the poor, a popular policy that has put a severe strain on public finances.

The government has acknowledged earlier that a price hike is essential for curbing fiscal deficit, a pre-condition for reviving growth in Asia’s third-largest economy. A price increase will also aggravate inflation, as costs, such as road freight rates, will rise.