New Delhi: A day after raising petrol price by a steep Rs 1.80 a litre, Indian Oil Corp, the nation's largest fuel retailer, on Friday said the hike was unavoidable as rupee depreciation has increased crude imports costlier. Freeing diesel prices will cool down inflation: Basu
"The rupee has dipped from Rs 46.29 to a dollar at the time of the last hike (on September 16) to Rs 49.40 making oil imports costlier," IOC Chairman R S Butola said.
India is 79 percent dependent on imported oil for meeting its fuel needs.
The dip in rupee value against the US dollar necessitated a hike of Rs 2.49 per litre in petrol price, but the desired increase was moderated to Rs 1.52 a litre because of some softening in oil prices. After accounting for local sales tax or VAT, the hike in Delhi came to Rs 1.80 a litre.
"It is not true that we are making profit on petrol. On certain days, may be one or two days, when crude prices had slumped, we must have turned positive. That was a temporary phenomenon.
"We do not do pricing on the basis of daily trends. If that was so the prices of petrol should have been raised by Rs 2.50 a litre because on certain days in October that was the desired increase owing to rupee dipping below 50 to a dollar," Butola said.
IOC and its sister state firms Hindustan Petroleum and Bharat Petroleum take average oil price and the exchange rate for the fortnight for deciding on the desired price at the retail level.
Butola said oil firms were last month losing 22 paisa per litre on petrol which they decided to absorb but from November 1, which took into account the average oil price and foreign exchange rate of second fortnight of October, the quantum had swelled to Rs 1.52 a litre.
"Based on the average oil price in the first fortnight of October, we were losing 22 paise a litre on petrol. Now that the average for the second fortnight of October has come, it shows a loss of Rs 1.52 paise," he said.
The government had decontrolled petrol pricing in June last year and given oil companies freedom to fix rates at retail level.
But they continue to sell diesel, domestic LPG and kerosene at government dictated price. The three firms lose Rs 333 crore per day on selling the three fuel at rates below cost.
The oil ministry in a press statement today said the three firms would end this fiscal with Rs 132,000 crore of loss on the three products.
They currently lose Rs 9.27 per litre on diesel, Rs 26.94 per litre on kerosene sold through the public distribution system (PDS) and Rs 260.50 per 14.2-kg LPG cylinder supplied to households for cooking purposes.
Meanwhile, on a day when the government was battling the political fall out of petrol price hike, its economic advisor pitched for a bold decision on freeing diesel prices, which he claims would eventually cool down inflation.
"I personally believe that we should decontrol diesel prices, which will take some pressure off the fiscal burden. And in the long run, it will cause inflation to go down," Chief Economic Advisor Kaushik Basu said in an interview.
Inflation should ideally be below five percent, he said.
"However, (it is) important to explain to our people that if we subsidise diesel artificially, by running up a large fiscal deficit, that would also exert an upward pressure on prices," Basu said.
In September, headline inflation was measured at 9.72 percent and food inflation has risen to 9-month high of 12.21 percent for the week ended Oct 22.
While petrol prices are market-linked, the government administers the prices of LPG, kerosene and diesel backed by heavy subsidies.
Only on Thursday oil marketing companies increased petrol prices by Rs 1.80 per litre. Finance Minister Pranab Mukherjee has acknowledged that the hike in petrol prices will have some impact on inflation.
Both Congress' allies and Opposition parties have slammed the price hike and have sought its roll back. Petroleum Minister S Jaipal Reddy has sought a meeting of the Empowered Group of Ministers (EGOM) to devise ways to cut the mounting losses to oil marketing companies due to the pricing of diesel, domestic LPG and kerosene as oil companies.
Prices of the cooking fuel and diesel were last revised in June.
Basu, who also heads a Prime Minister-appointed panel on inflation, said deregulating diesel prices will make India a more responsible country environmentally, because then "we will not encourage over-consumption of diesel vis-à-vis other more environment-friendly energy substitutes".
On inflation, he said bringing it down is a priority.
"I would like Indian inflation to be kept firmly below 5 percent. In fact, I would like a target of 4 percent. That gives you flexibility for relative price adjustment and also purchasing power parity adjustment, which is natural during high growth," he said.
The CEA, however, admitted that India won't be able to bring down inflation to the target of 5 percent by the end of the fiscal.
"But if we can reach 5 percent or less sometime toward the end of the next calendar (2012), that would be good," he added.
The Reserve Bank has hiked interest rates 13 times since March, 2010, in its bid to tame inflation, a cause of big concern for the government.
The central bank expects inflation to moderate to 7 percent at March-end and Basu agrees with the forecast.
New Delhi: A day after raising petrol price by a steep Rs 1.80 a litre, Indian Oil Corp, the nation's largest fuel retailer, on Friday said the hike was unavoidable as rupee depreciation has increased crude imports costlier.
Freeing diesel prices will cool down inflation: Basu