Fuel prices await rule tweak

Fuel prices may change more frequently with shifts in global crude values, while the burden on consumers will be different for petrol, diesel, kerosene and LPG

These far-reaching changes can figure in the report of the Kirit Parikh panel on fuel prices, which will be tabled soon.

Officials said the huge fiscal deficit and the need to improve the health of the PSU oil firms might force the government to take some harsh measures based on the recommendations of the panel.

However, not all the recommendations will be accepted given the rising inflation and the fact that fuel prices are a politically sensitive issue.

As part of a differential pricing strategy, the burden will be most on users of petrol while it will be least for kerosene. Pricing norms will also be applicable to diesel and LPG.

Instead of hiking prices at one go, sources said, the panel can recommend a series of increases over specific time periods. Besides, to arrive at the prices for, say, the next 15 days or a month, the panel may propose taking the average of the previous six or three months, meaning a marginal rise in prices.

The suggestion of dual pricing for diesel — one linked to global crude prices for bulk users, and another for retail consumers — may not come through as it can result in black marketing. “Dual pricing, if applied, may also lead to leakages and diversion of resources for which effective and strict implementation is needed,” the sources said.

They said for domestic LPG cylinder and kerosene the panel could recommend a targeted subsidy mechanism through smart cards as it would not only reduce the subsidy burden but also directly provide benefits.

The panel is also trying to drop the ad hoc discounts that upstream oil firms such as ONGC, Oil India Limited and GAIL (India) Limited give to the public sector refiners.

Instead, a special tax would be levied on them whenever crude prices moved beyond a level, and the corpus distributed among the refiners.