Naik writes to PM on how to keep all happy

Petroleum Minister Ram Naik is playing it safe. In the year of elections, he does not want to unilaterally raise the price of cooking gas LP...

Petroleum Minister Ram Naik is playing it safe. In the year of elections, he does not want to unilaterally raise the price of cooking gas LPG and kerosene without the political nod. And to get that consent, he has shot off a letter to the Prime Minister A.B. Vajpayee outlining ways to partially offset the losses of oil industry without distressing consumers.

To keep both companies and the consumers happy, Naik has suggested a middle path to Vajpayee that includes excise duty exemption on both products, phasing out subsidies in April 2007 instead of April 2005 and marginally raising consumer prices at regular intervals.

Naik has asked for removal of the 16 per cent excise duty on both products on grounds that they are mass-consumption fuels used mostly by middle and poor sections of society. That way, without a change in consumer prices, firms will get to keep Rs 27.34 per cylinder and Rs 1.11 per litre that they currently pay to the national exchequer.

Story continues below this ad

Raising the subsidy payout term to five years instead of current three years would result in the Finance Ministry forking out Rs 54.20 per cylinder and Rs 1.96 per litre as subsidy instead of Rs 45.17 and Rs 1.63 that it has earmarked in 2003-04 budget. The difference would be pocketed by oil companies to meet their shortfall.

Naik has also suggested that a policy decision be taken on a monthly review of consumer prices so that consumers get used to price changes. Without these measures, consumer prices would need to be raised by Rs 118.82 per cylinder and 1.31 per litre to offset the companies’ cost of production. Oil sector public sector undertakings lost Rs 5,430 crore last year in selling LPG at Rs 241.20 per cylinder and kerosene at Rs 8.98 per litre, even after a subsidy component of Rs 67.75 per cylinder and Rs 2.45 per litre.