Indian Government hikes fuel prices; Opposition, Left on warpath

New Delhi, Jun 4 (UNI) After dithering for months, the government today finally took a plunge announcing a hike of Rs 5 for petrol, Rs 3 for diesel and Rs 50 on LPG cylinder, but the unprecedented hike raised a political storm and hit the common man.The Cabinet Committee on Political Affairs (CCPA), which met this morning, took a decision to hike prices of petrol and petroleum products as a part of the process to bail out the beleaguered the Oil Marketing Companies (OMCs).The under-recoveries of OMCs, which were to the tune of Rs 2,45,305 crore in current fiscal before the hike, would now be reduced to Rs 1,35,000 crore on account of cut in customs and excise duties as well as the price hike. The burden on the exchequer on account of duty cuts would be Rs 22,660 crore and the price hike will benefit OMCs by Rs 21,123 crore. Revenue Secretary P V Bhide said the government will issue oil bonds to the order of Rs 94,600 crore as part of the multi-pronged bail-out strategy. Prime Minister Manmohan Singh took an unusual step to address the nation as to what necessitated the hike and the consequences of further delays in taking such an action. Global crude oil prices have touched an all-time high of 135 dollars a barrel, but the government was reluctant to pass on the entire burden to the consumer, reeling under spiralling prices of essential commodities.This compelled the government to work out a multi-pronged strategy, but the decision did not go well either with the political parties or public at large.Dubbing the hike ''suicidal,'' the Left parties announced a dawn-to-dusk bandh tomorrow in the Left-ruled States of West Bengal, Kerala and Tripura as part of their week-long nationwide agitation against the decision.The BJP and other opposition parties were quick to capitalize on the hike, with political pundits predicting that this would become a major issue in the year-end Assembly Elections.Some States took a cue from the government's advice and announced a reduction in sales tax to bring down the burden on the consumer. The first to do so was Maharashtra, and states like Andhra Pradesh and Kerala said they would take a decision on the matter soon.

The rigjig on duties entailed abolishing custom duty on crude from the present level of five per cent. The custom duty on HSD and petrol has been brought down from 7.5 per cent to 2.5 per cent.The customs duty on petroleum products was reduced from 10 per cent to 5 per cent.The excise duty on HSD and petrol has been slashed by Rs one per litre. Petroleum Minister Murli Deora said no rollback was on the cards and the price hike will have only a minimal impact of 0.5-0.6 per cent on inflation. A zigzag battle ensued between Mr Deora and the Left parties, with the former saying that the government had taken the Left on board, while CPI(M) General Secretary Prakash Karat claiming that they had not been taken into confidence by the government.The Minister said he will seek SLR status for the oil bonds, but whether the Reserve Bank will agree to this was still a question mark.The chambers complimented the government for having performed a fine balancing act in the difficult situation that it is faced with and said growth necessitates a reduction on oil subsidies.They also lauded the government for having taken recourse to a multi-pronged approach and enjoined upon the State governments to restructure the sales tax regime to reduce the agony of the common man.

A worried Prime Minister constituted a three-member high powered committee headed by former Cabinet Secretary B K Chaturvedi to examine the impact of oil price hikes in the past four years and the financial position of oil companies. In his address to the nation, Dr Singh conceded that the hike would be unpopular, and said the increase was ''bare minimum.''The Prime Minister appealed for adopting measures for conservation of energy and called for development of renewable energy sources.''Business cannot go on like this for ever...we need to be efficient and economical in our use of energy. And we need to pay the economic cost of petroleum products,'' Dr Singh said.The biggest refinery in the country, Indian Oil Corporation, reacted positively to the news, saying that it will improve its liquidity and will bring down the cash losses of the ailing giant.An ONGC spokesman said the customs duty cut will have a negative impact of Rs 2,000 crore, but the oil industry stalwart Subir Raha regretted that the issues of targeting oil subsidy and price volatility have not been addressed.The auto sector howled that the fuel price hike will impact its sales, but felt that it would increase the demand for fuel efficient vehicles. Those who joined the chorus included Maruti, Tata Motors, Hyundai Motors and Ashok Leyland.The fuel hike is roughly of the order of 11 per cent for Petrol, 9.44 per cent for diesel and 17 per cent for LPG.Finance Minister P Chidambaram is on record as having said that the general price level will be impacted in the short run, and was unsure as to where global crude prices were heading.In this entire drama, the most confounded was the man on the street who did not what the future held for him as his real income shrinks and shrinks.