In reform push, govt to hike kerosene price every month

After hiking the price of kerosene by 25 paise for the first time in five years on 1 July, the government is believed to have taken a decision to further raise prices by similar amount over the next ten months. In its attempt to further prune the fuel subsidy burden, the Centre has asked state-owned oil firms to revise upward kerosene price by 25 paise every month till April 2017. [caption id=“attachment_1574781” align=“alignleft” width=“380”]  AFP[/caption] “The 25-paise hike per month for next ten months (beginning July) in PDS kerosene is as per government directive,” Economic Times reported quoting a spokesperson for Indian Oil Corporation (IOC). Analysts have cheered the move suggesting the overall reduction in gross under-recoveries on the fuel. Rating agency ICRA estimates that the move to increase retail prices of subsidised kerosene by Rs 0.25/litre per month for ten months (from July 2016 to April 2017) would lead to overall reduction in gross under-recoveries on kerosene by Rs 760 crore in FY2017 and Rs 2,040 crore in FY2018. As kerosene under-recoveries beyond Rs 12/litre are expected to be borne by PSU upstream companies, the upstream companies would be major beneficiaries of the reform especially at current or higher level of crude oil prices, ICRA said in a note. According to ICRA, the kerosene price hikes along with the government’s thrust on improving penetration of domestic LPG could lead to sustained material increase in demand of LPG over the medium to long-term. Kerosene accounted for 42% of the total petroleum subsidy in 2015-16, the ET report said, adding the monthly kerosene price increase is similar to the path taken by the government to decontrol diesel price. Bank of America-Merrill Lynch has termed it a long-pending, significant pricing reform. “Post the price increase, overall FY17/FY18 subsidies will fall by Rs 1,100 crore and Rs 2,400 crore, respectively,” the ET report says citing BofAML.