Diesel, kerosene, LPG prices hiked; excise, customs duties cut

In a steep hike, the government on Friday increased diesel price by Rs 3 per litre, domestic LPG by Rs 50 per cylinder and kerosene by Rs 2 per litre and slashed customs and excise duties on crude oil and products, sacrificing Rs 49,000 crores in revenues.

The increase, decided at a meeting of the Empowered Group of Ministers headed by Finance Minister Pranab Mukherjee, is exclusive of local sales tax, Oil Minister S Jaipal Reddy told reporters here.

Diesel price in Delhi will be hiked by Rs 3.37 per litre to Rs 41.12 a litre with effect from midnight. Rates will vary at cities due to differential rates of VAT/sales tax.

Besides the price hike, the EGoM decided to abolish the 5 per cent customs or import duty on crude oil, and slashed the same on diesel and petrol by 2.5 per cent from 7.5 per cent. Also, excise duty on diesel was cut from Rs 4.60 per litre to Rs 2 a litre.

Reddy described the hikes, which had become necessary in view of a rally in international crude oil price, as ‘very modest and minimal’.

The decision to cut customs duty on petrol also meant that the Rs 1.98 per litre hike needed to level retail prices with their cost would no longer be required, he said.

The reduction in excise duty on diesel would lead to a revenue loss of Rs 23,000 crore this fiscal, while in the customs duty cut the government will forego Rs 26,000 crore. The price hike would help the oil companies limit their revenue loss by Rs 21,000 crore, but they still would end the fiscal with about Rs 1,20,000 crore of revenue loss.

Oil Secretary G C Chaturvedi said the hike in price of diesel would add 0.3-0.4 per cent increase in inflation which is already hovering around 9 per cent, more than twice the rate in the US and almost four times of Germany's.

A 14.2-kg domestic LPG cylinder now costs Rs 345.35, while kerosene is priced at Rs 12.73 a litre in Delhi.

Asked about the political fallout of the hike, Reddy said, ‘Political problem will always be there. Economic problem will not wait for solution to political crisis.’

Despite a steep hike of Rs 50 per cylinder in LPG rates, which equals Rs 50.55 increase by the then NDA government led by Atal Bihari Vajpayee government in March, 2000, domestic cooking gas will still be cheaper compared to that in the neighbouring countries.

LPG in Pakistan costs Rs 611.40 per cylinder, Rs 484 in Bangladesh, Rs 878.90 in Sri Lanka and Rs 821 in Nepal.

Similarly, the Rs 2 per litre hike in kerosene price, which comes on the back of last year's Rs 3 per litre raise, would raise rates in Delhi to Rs 14.83 per litre, still cheaper than Rs 43.95 in Pakistan, Rs 27.81 in Bangladesh, Rs 25.12 in Sri Lanka and Rs 42.61 of Nepal.

"I am sandwiched between economist on the one hand and populist on the other. Economist will say why only Rs 2 per litre increase in kerosene, while the populist will say why did you increase by even Rs 2 per litre," Reddy said. "Consumers can easily absorb the hikes announced today."

Asked how he managed to convince the finance ministry to forego revenues in a difficult year, he said, "I will not give you a glimpse into my kitchen. I will only serve the dishes."