Standoff over oil price hike, PM may have to step in

The price revision of petro-products has snowballed into a standoff of sorts between the Petroleum Ministry and Finance Ministry with each sticking to its stand.

The price revision of petro-products has snowballed into a standoff of sorts between the Petroleum Ministry and Finance Ministry with each sticking to its stand.

Days after Finance Minister P. Chidamabaram’s comment in Coimbatore on the need to raise prices, Petroleum Minister Murli Deora wants the Finance Minister to accept customs and excise duty cuts to mitigate the effect of surging global oil prices.

Today, Deora brought up the issue again, only to find Chidambaram resisting. Deora, who may ask Prime Minister Manmohan Singh to intervene, is likely to paint a grim scenario of a hefty price hike — as much as Rs 9.33 per litre of petrol, diesel by Rs 10.43 and LPG cylinder by Rs 114.45 — to try and push for duty cuts.

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With the duty cuts, Deora will be able to keep the price rise to Rs 3 per litre of petrol and diesel and Rs 50 on LPG cylinder. Part of the under-recoveries on these products would be met through money from crude producer ONGC and gas suplier GAIL.

But Chidambaram faces a different dilemma while trying to raise revenue for the National Rural Health Development Programme and National Rural Employment Guarantee Programme.

With external loans under a cloud, he does not want to risk any shortfall in collections through these cuts. He has already forgone a lot through customs and excise duty exemption which resulted in static collections of Rs 77,800 in 2005-06 and Rs 77,692 in 2004-05 even though crude oil prices soared.

The ball is now in the Prime Minister’s court with a final decision to be taken by the Cabinet Committee on Prices.