India: Kirit Parikh Committee Report Calls for Price Liberalisation

PetrolWorld said it would be the end of January; however, it finally came in the first week of February! The Indian petroleum sector was told the results of the Kirit Parikh committee. The findings recommended that there should be no government control over prices of fuel at both the refinery, wholesale and retail level. It has also said that diesel prices should be decontrolled at the retail level.

The panel has proposed that the fuel subsidy should continue but has proposed a Rs 6 per litre hike in its prices. Recommending the need for rationalising fuel supply under PDS, it has suggested that smart cards should be issued to consumers getting subsidised fuel.

The panel has favoured a Rs 100 per cylinder hike in LPG prices. The report has also highlighted the need to rationalise LPG cylinder distribution and said that in the long term LPG subsidy should be only given to families living below the poverty line.
The subsidy on LPG is currently at Rs 287 /cylinder and PSU oil companies currently bear a revenue loss of Rs 3/litre on petrol. Among its other suggestions, it has said that the hike in diesel prices should be linked to per capita income.

The oil secretary said that the Prime Minister want the Parikh panel report to be passed soon. Oil Minister Murli Deora said that the Parikh panel report would be put before the Cabinet next week. The recommendations of this panel assume more importance as its commissioning was part of a budget speech that talked about moving away from a subsidy regime.

On the sidelines of PetrolWorld’s recent Business Forum in Mumbai, there was much discussion and views exchanged on the current status quo and the importance of the Indian Government moving forward for the future economy of India as well as for the industry. The key state oil companies of India Oil Corp, Bharat Petroleum and Hindustan Petroleum continue to lose money in operational terms even with support from the Government. However the non state companies Reliance and Essar are in an even worse situation where they have to operate without any support.

Next week comes the politcial reality of the cabinet. Any move to raise fuel prices could backfire on Prime Minister Singh, giving political parties added ammunition to attack his government. Opposition Bharatiya Janata Party national spokesperson Ravi Shankar Prasad said the report can’t be implemented given the current price rise proposed. Watch this space!

PetrolWorld 030210