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UPA govt to debate hiking petrol prices

Jan 03, 2008 09:59 PM IST Business Business

New Delhi: Oil prices are at their highest ever mark of $100 per barrel.

The government, on its part, is finding it difficult to do keep a balancing act with elections due this year in eleven states. However, it may not be able to ward off a fuel price hike for long, with global crude prices breaching the $100/barrel mark.

Minister for Petroleum and Natural Gas, Murli Deora holds out some hope for consumers: a price hike is not the only option.

“Crude prices is a matter of concern,” he said. “All options, including hikes, are open but we will ask the FM for duty cuts on petro products,” he told reporters.

Although Deora was not forthcoming on the quantum of the possible price hike, sources said that the GoM on fuel prices, which is expected to meet at the end of January, are expected to discuss a proposal for raising petrol prices by Rs 2 per litre and for diesel by Re 1 per litre.

Sources have told CNN IBN that the government is working on a two-pronged strategy – a marginal price hike combined with duty cuts on petro products.

Petro duties in India are among the highest in Asia, at around 47 per cent.

Petroleum companies have been bleeding for quite some time, losing Rs 9.25 for every litre of petrol sold and over Rs 10 for every litre of diesel. The total for under-recoveries stands at a staggering Rs 70,000 crores.

In response, the Finance Ministry had already issued oil bonds worth Rs 24,000 crores this fiscal year. Parliamentary approval has further been obtained for issuance of a further Rs 11,500 crores.

Given the buoyant nature of the tax collections, the Finance Ministry can afford duty cuts without necessarily disturbing the FRBM targets for this fiscal year.

But Finance Minister P Chidambaram is unwilling to offer any cuts, despite record-breaking tax collections.

The government is likely to have another tough problem on its hands as its chief ally, the CPI-M is not in favour of price hikes, either.

CPM MP D Raja summed up his party’s stance.

"The government must look after the interests of common people," he said.

Given the current political situation, Deora would have to do some slick manoeuvring to find a middle path between a Finance Minister completely opposed to granting any kind of duty relief to OMCs and the Left.

The GoM at the end of January may bring answers to the problem of fuel prices.

History of the hike in crude prices

  • In 1970, the official price of Saudi crude was fixed at $1.8 per barrel

  • By the ‘80s, it moved up to $30 per barrel, at the height of the Iran-Iraq war

  • Iraq’s invasion of Kuwait in the 1990s and the ensuing Gulf War saw prices rise to $40 a barrel

  • The Iraq invasion in 2005 and hurricane hitting the Gulf of Mexico pushed prices to $70 a barrel

  • The commodity price hovered around the $90 mark for long, due to downside in the US economy and the rising tensions in Nigeria and Algeria, two oil-producing nations
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