Hike diesel price by Rs 5/litre, recommends Parikh panel

India should immediately raise diesel prices by about 9.5 percent or Rs 5 a litre, a government panel recommended on Wednesday, along with other measures aimed at cutting the government’s huge oil subsidy bill.

The Kirit Parikh Committee, set up in May to advise the government on fuel pricing, also suggested capping the subsidy on diesel sales at 6 rupees a litre, Oil Minister S. Veerappa Moily told a press conference.

The panel also favours reduction of the quota of subsidised LPG to 6 cylinders per household in a year from 9 at present.

The panel has recommended Rs 4 per litre increase in kerosene in line with per capita agriculture GDP and Rs 250 per cylinder hike in LPG rates, Parikh told reporters after presenting the report to Oil Minister Veerappa Moily.

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The panel also recommended fixed subsidy of Rs 6 per litre on diesel while favouring deregulation of diesel price in a year’s time.

The panel also recommended revision of subsidy sharing by ONGC and Oil India for FY15, but proposed theire share to be retained in FY14.

The panel also wanted the government to compensate fully the under recoveries of oil marketing companies remaining after the upstream companies share.

Upstream companies currently retain $54 per barrel. The panel has recommended this to be increased to $62.75 in case the crude oil is at $110 per barrel.

The expert group was tasked to suggest a methodology for pricing of diesel and cooking fuel.

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The recommendations of the committee are not binding and need cabinet approval to be implemented.

With state elections looming from November and a general election due by May 2014, the government may find it difficult to raise domestic fuel prices sharply.

India, the world’s fourth-largest oil importer, needs to rein in subsidy spending to help stabilise its finances and support the rupee, which hit a record low earlier this year.

The diesel price hike could cut the government’s fuel subsidy bill by as much as 160 billion rupees from November 1 to the end of the current fiscal year on March 31, 2014, Reuters calculations show. Diesel accounts for over 40 percent of refined fuel use in the country.

Agencies