The Indian government, battling a galloping inflation, Thursday said it was cutting the prices of petrol and diesel by Rs.2 and Re.1 a litre respectively, aided by the decline in international crude oil prices.
The move followed some high-level talks Petroleum Minister Murli Deora had over the past week with ruling United Progressive Alliance (UPA) chairperson Sonia Gandhi, Prime Minister Manmohan Singh and Finance Minister P. Chidambaram.
Sonia Gandhi and Manmohan Singh were reportedly in favour of ensuring that since global crude prices had dropped, the burden on the common person should be eased to whatever extent possible, especially since inflation had risen to new peaks.
The reduction was to take effect midnight Thursday, with Deora indicating further cuts in the coming weeks. 'The finance ministry will decide the reduction of customs and excise duties in crude oil,' he said.
Petrol will now cost Rs.42.85 a litre in the national capital while diesel will retail for Rs.30.25 - in line with an IANS report last week. In June 2006, the government had hiked the prices of the two fuels by Rs.4 and Rs.2, respectively.
The decision has also left consumers happy.
'I have a budget of Rs.2,500 per month for petrol. Now, I'll be able to drive a little more,' said Moses Phillip, who works as a sales engineer in an electrical and electronics company.
'On Sundays, when I would ask my husband to take me out, high petrol cost was an excuse he would normally use. Now that there is some reprieve, I hope he doesn't find some other alibi to deny my kids and I some weekend outings,' said Swapna Gupta, a homemaker in east Delhi.
Thursday's decision also followed some tight monetary policy measures taken in the past weeks by the Reserve Bank of India (RBI) where the cash reserve ratio (CRR) and the repurchase rate on government securities were hiked.
According to petroleum ministry officials, while the cut in prices of diesel will mean a loss of Rs.2-Rs.2.5 a litre on diesel, the revised rate for petrol will mean a no-profit-no-loss exercise.
'The burden of this price reduction will be met partly by the revenue inflows and partly through oil bonds that have already been approved,' Deora told a press conference here.
He said out of Rs.283 billion worth of bonds approved earlier, Rs.191.5 billion had already been issued.
'We have kept our promise that if international crude oil prices come down, we will bring down retail prices. In fact, we hope to bring it down further to June 2006 levels,' Deora said.
In June 2006, when the last price increase was announced, the Indian oil basket was at $67 per barrel, which jumped to $75 by August. But since then there has been a consistent dip in the Indian basket pricing, down to $52 per barrel in recent weeks.
On the other hand, the annual rate of inflation based on the official wholesale price index moved up to 6.73 percent for the week ended Feb 3, from a level of 3.98 percent a year ago.
The petroleum ministry had done a study based on the refinery transfer price in the second week of January, which called for a cut of Rs.3.60 per litre in petrol, and Re.0.36 in diesel in the capital.
But officials said that even at the current global crude price of $56 per barrel, state-run oil marketing firms were incurring heavy under-recoveries on subsidised kerosene and cooking gas.
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