Fuel prices will rise next week as the government is planning to increase the state-set price of diesel by up to Rs 5 per litre while oil companies are preparing to raise petrol rates by a similar amount after assembly polls end on May 10.
The empowered group of ministers (EGoM) on fuel prices, which fixes the price of diesel, cooking gas and kerosene, will meet on May 11 to consider the oil ministry's proposal to raise diesel prices by Rs 5 per litre - the first increase since June last year. The ministers would also consider increasing the price of cooking gas and kerosene.
The government last raised the price of diesel by Rs 2 per litre on June 26, the day it freed pricing of petrol. Crude prices have risen from about $75 per barrel then to more than $120 a barrel.
Senior executives of state-run oil companies said they would meet soon to raise petrol prices for the seventh time since June last year. While oil firms are free to raise petrol prices, they have not increased rates since January as the government informally told them to wait until assembly elections were over.
"As public sector companies, we can't pass on the entire burden to consumers. Even after the increase, petrol prices will be lower than market rates," a director in a state-run oil company said, requesting anonymity. Fuel companies are selling petrol about Rs 8 a litre below market rate in New Delhi.
Officials said the government did not have the political will to deregulate diesel at this juncture as it would mean a Rs 18 per litre jump in prices, which would accelerate inflation besides giving a handle to the opposition. "Even a Rs 5 per litre rise in the price of diesel immediately after assembly elections will be politically difficult," one of them said on condition of anonymity.
It is possible that the EGoM would be deferred or the first meeting would remain inconclusive. But a rise in diesel price is inevitable in May or else companies' under-recoveries (revenue loss) would touch 200,000 crore this year," the official said. Diesel constitutes 60% of companies' total revenue loss for selling fuel below market rates.
Officials indicated that prices of cooking gas and kerosene could also be raised marginally. Kerosene, the fuel of the poor, could see a Rs 3 per litre hike, while cooking gas price could go up by 50 per cylinder. IndianOil , India's biggest fuel retailer with about 50% market share by volume, is losing 29.7 a litre on kerosene and 330 per cylinder on cooking gas.