The price of non-subsidized cooking gas (LPG) was on Friday hiked by Rs 46.50 per cylinder as part of reform measures unleashed by the government to trim its huge fuel subsidy bill.
A 14.2-kg LPG cylinder that consumers will have to buy after they exhaust their enhanced quota of 9 subsidized bottles in a year, will cost Rs. 942 from Friday, according to Indian Oil Corp (IOC).
Oil PSUs had last hiked the price of non-subsidized LPG by Rs. 26.50 per cylinder on November 1, but had to roll it back within hours as the government did not want to compound the backlash it was already facing for limiting supply of subsidized LPG to just six cylinders per household in a year.
However, after Thursday’s government decision to raise the supply of LPG at subsidized rate of Rs. 410.50 to 9 cylinders per household in a year from six, the rate for non-subsidized gas was hiked by Rs. 46.50 per 14.2-kg cylinder to Rs. 942 in Delhi.
The government also moved towards deregulating diesel rates when it raised prices by 50 paisa per liter and planned similar monthly hikes in future. This was coupled with a decision to charge bulk consumers like defense, railways and state transport undertakings market price which is almost Rs. 10 a liter more than retail selling rate, to save an estimated Rs. 12,907 crore in annual subsidy.
As a sweetener to the bitter pill, the Cabinet Committee on Political Affairs chaired by Prime Minister Manmohan Singh bowed to public pressure to raise the cap on subsidized LPG to nine cylinders per household from six. State-owned oil companies in parallel cut petrol price by 25 paise a liter in view of softening in global oil rates.
IOC Chairman R. S. Butola said the decision on diesel rate increase for retail and bulk consumers will cut subsidies by about Rs. 15,000 crore on an annualized basis, and by Rs 3,400 crore in remainder of FY’13.
On the other hand, the move to increase supply of subsidized LPG would result in hike in subsidy by Rs.10,000 crore, he said, adding that the net result of the two decisions would be a cut in subsidy by about Rs. 5,000 crore.
Before Thursday’s decision, the oil firms had projected to lose Rs. 1,56,601 crore in revenue on sale of diesel, LPG and kerosene at below market prices. Butola termed the government decision as “practical and pragmatic” and said the oil companies will review diesel prices every month and take decisions on raising prices “based on ground realities“. He did not elaborate.
While the base hike in diesel price was 45 paisa, it will lead to an increase of 50 paisa in Delhi after including local VAT. It is costing Rs. 47.65 a liter from Friday as against Rs. 47.15 previously.
Similarly, while the base rate cut on petrol was 25 paisa, it will translate into a reduction of 30 paisa in price in Delhi to Rs. 67.26 a liter. Prices vary from city to city due to differential local sales tax or VAT rates. Bulk users, which consumer around 17.77 percent of the total diesel sales in the country, will pay Rs. 56.88 a liter in Delhi with effect from Friday midnight.
While bulk diesel rates will be revised on 1st and 16th of every month based on previous fortnight average oil cost, the price of non-subsidized LPG would be changed once a month. Butola said the hike in diesel price will help neutralize the Rs. 10,000 crore hikes in bill to subsidize domestic cooking gas (LPG) whose rates along with kerosene have been untouched.
The price cut in petrol, which was deregulated in June 2010, is the first revision since November and was announced by oil companies independent of the government decision. Previously, petrol price was cut twice in October and November -- first by 56 paise and then by 95 paise per liter.
Price of diesel was last revised on September 14 when it was hiked by a steep Rs. 5.63 per liter. Kerosene rates have not changed since June 2011 and it currently costs Rs. 14.79 per liter in Delhi.
Subsidized LPG costs Rs. 410.50 per 14.2-kg cylinder and any household requirement beyond the new cap of 9 cylinders will have to be bought at Rs. 942 per bottle. Butola said consumers will get 5 subsidized cylinders instead of previously mandated 3 in the period to March 31, 2013. From April 1, 2013 they will get 9 cylinders in a year.