There is a hint of a cautious move to deregulate fuel prices in the government's decision to hike retail prices of autofuels now. Also interesting is the timing of the move, on two counts. The West Bengal civic elections are over, and so crucial coalition partner Mamata Banerjee's opposition to such a move will be muted. More significantly, the hike in autofuel prices on the eve of the Budget paves the way for the government to perform two kinds of fiscal reforms. One, to include fuel subsidies in budgetary accounting, instead of fudging the figures by counting oil bonds meant to finance fuel subsidies as off-budget items. Two, to keep the now expanded fiscal deficit down by reducing the amount of subsidy on retail fuels.

The last time autofuel prices were increased was on June 4, 2008, which was followed by two quick rounds of price reduction in December 2008 and January 2009, well before the general elections were announced, as global crude prices came down sharply. As a result, petrol got cheaper by Rs 10 a litre and diesel Rs 4 a litre.

The government is also considering to compensate state-owned oil marketing companies--IOC, BPCL and HPCL--through budgetary provisions. This will be a departure from the current ad-hoc practice of compensating them through oil bonds.

Fuel prices were increased after consulting UPA chairperson Sonia Gandhi and Prime Minister Manmohan Singh, oil minister Murli Deora said at a press conference.

Source: Economic Times Petrol costlier by Rs 4, diesel Rs 2, LPG spared