The two moves to cut OMCs' underrecovery by Rs 20,300 cr this year In the second major oil sector reform after petrol decontrol of June 2010, the government on Thursday capped subsidised domestic liquefied petroleum gas (LPG) for a consumer to six per year. For a consumer using 12 LPG cylinders annually, the extra outgo on six additional cylinders at current market price will be Rs 2,106. Also, the diesel price was increased by Rs 5 a litre, while the excise duty on petrol was reduced by Rs 5.30 a litre to avoid a price increase. The market price for LPG would be revised on a monthly basis. For the remaining period of the current financial year, a consumer could avail of three subsidised cylinders. Even after this measure, subsidy on domestic cooking gas for the financial year would be Rs 32,000 crore. The price of kerosene has remained untouched since it was hiked in June 2011. Even as some of the coalition partners of the United Progressive Alliance (UPA) and the Opposition parties criticised the move, economists welcomed it, saying it would help contain the fiscal deficit. Deloitte India Senior Director Anis Chakravarty said, since diesel had a commercial aspect to it, inflation was likely to go up in the short term. Diesel prices Rs /litre 13-Sep 14-Sep Mumbai 46.25 51.25 Chennai 43.91 48.91 Kolkata 44.76 49.76 Delhi 41.32 46.32 After a late evening decision taken by the Cabinet Committee on Political Affairs, the petroleum ministry announced Rs 1.50 levy in excise duty. Excise on diesel was cut in June last year from Rs 4.60 to Rs 2 per litre. The Rs 5 hike in diesel is inclusive of tax. The excise rejig is unlikely to have a revenue impact as petrol consumption is less than a fourth of diesel’s. The increase in diesel price, effective from midnight, comes after a gap of 14 months. The combined impact of diesel hike and cap on domestic LPG will reduce the underrecovery of oil marketing companies — IndianOil, Bharat Petroleum and Hindustan Petroleum — by about Rs 20,300 crore this year, said a government statement. Consumers will pay market price (around Rs 750) if they consume more than six LPG cylinders in a year. Price of subsidised LPG is Rs 399 in Delhi. Government-owned oil marketing companies (OMCs) would be able to cut borrowings for working capital requirements, said P K Goyal, director (finance), IndianOil. Despite on Thursday’s decisions, gross underrecovery for the financial year on the three regulated products (diesel, kerosene and LPG) will be Rs 167,000 crore, much higher than the Rs 138,541 crore last year. After factoring in the local levies, diesel will now cost Rs 47 a litre in Delhi, compared to Rs 41.32 earlier. Even after on Thursday’s price hike, the underrecovery on sale of diesel in the current financial year is estimated to be above Rs 103,000 crore. COSTLIER FUEL Diesel 13 September 14 September Price Rs 41.32/litre Rs 47/litre Excise Rs 2 Rs 3.50 Impact Cut in underrecovery by Rs 15,000 crore LPG LPG cylinders allowed after every 21 days Only 6 subsidised cylinders (at Rs 399) annually Price Rs 399/cylinder Around Rs 750/cylinder for additional cylinders Impact Cut in under-recovery by Rs 5,300 crore Petrol Price Rs 68.46/litre Rs 68.46/litre Excise Rs 14.78 Rs 9.48 Impact No impact on underrecovery as it is deregulated Prices for IndianOil in Delhi There will be “no rise in the price of petrol, though the current underrecovery on petrol is about Rs 6 a litre. OMCs’ loss will be offset via reduction in excise on petrol by Rs 5.30 per litre,” the statement said. Trinamool Congress, a key UPA ally, on Thursday opposed the hike in diesel price, saying it was not consulted on the step and demanded its rollback.