New Delhi, September 13
The Cabinet Committee on Political Affairs (CCPA) has decided on a massive hike in diesel prices by Rs 5 per litre with effect from midnight, and for the first time, restricted the supply of subsidized LPG cylinders to each family to 6 per year. Every cylinder beyond this limit will have to be purchased at more than Rs 700 per cylinder. Petrol and kerosene prices have not been hiked.

An official statement said the decisions have been taken to address the disturbing situation as under-recoveries of oil companies are at Rs 1.87 lakh crore for this year. Key UPA allies like the Trinamool Congress and Samajwadi Party have slammed the move and demanded a rollback. The principal opposition party, BJP has also protested against the decision.

Both diesel and cooking gas are considered politically sensitive issues given their widespread usage and diesel is used widely in agriculture and transportation of goods. The move to limit subsidies will immensely please the markets and industry which have been clamouring for subsidy cuts and guard against a downgrade threat by global rating agencies asking for reining in the fiscal deficit.

In a very steep hike which will be inflationary, diesel prices have been increased by Rs 5 per litre of which Rs 1.50 per litre is on account of increase in excise duty. The balance increase of Rs 3.50 per litre will reduce the under-recovery of oil companies by about Rs 15,000 crore for the remaining part of the current financial year.

The under-recovery on sale of diesel during 2012-13, even after this price hike is estimated to be above Rs 1.03 lakh crore. In Delhi, diesel will now cost approximately Rs 47 per litre. Branded diesel will now be sold at the market rate.

There is no increase in the price of petrol and the under-recovery on petrol is of about Rs 6 per litre will be offset through reduction in excise duty on petrol by Rs 5.30 per litre.

For the first time, the government has announced restricting use of subsidised cooking gas. Only 6 cylinders will be given every year at subsidized rate of around Rs 400 per cylinder and since there is a subsidy of Rs 350, the remaining will be available at Rs 700-750 and the price will be announced every month.

Any number of cylinders will be available over and above the cap of 6 cylinders at market rate. The number of subsidized LPG cylinders available to each consumer in the remaining part of the current financial year will be 3 cylinders.

The effect of capping supply of subsidized LPG cylinders at six per annum will lead to saving of subsidy on one third of the total LPG cylinders. Two third of the total cylinders will still be supplied at subsidized rate.

About 44% of the total Domestic LPG consumers, who consume 6 cylinders or less per annum, will not be affected by this decision. Capping of cylinders will also lead to reduction in misuse and diversion of subsidized cylinders, the statement said.