Gasoline prices will be deregulated, resulting in a 3.5 rupee per liter price increase, Oil Secretary S.Sundareshan told reporters after a high-level government panel headed by Finance Minister Pranab Mukherjee made the decision.
Diesel prices will be hiked by 2 rupees a liter but will be deregulated at some point in the future, he said.
The government will raise kerosene prices by 3 rupees a liter, the first increase since 2002, but continue to subsidize the cooking gas, which is used by tens of millions of poor Indians. Liquefied petroleum gas, also used for cooking, will cost 35 rupees more a cylinder. Even after the price hikes, state-run oil and gas companies will face a shortfall of 530 billion rupees ($11.4 billion) from below-cost sales, Sundareshan said.
He said gasoline deregulation would likely add 190 rupees a month to the average fuel bill for cars and 30 to 35 rupees a month for two-wheelers.
Opposition politicians, who have led protests over high inflation, were quick to condemn the move.
Trinamool Congress chief Mamata Banerjee, a growing power in her home state of West Bengal, told the Press Trust of India news agency she was unhappy with the price hike.
Four leftist opposition parties fired off a statement saying they “strongly oppose this cruel blow.” Leading business group FICCI urged the government to figure out some way — perhaps through tax policy — to help protect the country from spikes in global oil prices.
“While developed country consumers can afford to live with fully market-driven oil prices, an emerging country like India may find it difficult to handle,” FICCI Secretary-General Amit Mitra said. “Sharp fluctuations in oil prices will have an impact on overall inflation and can derail the growth process in the economy.” May inflation was a higher-than-expected 10.2 percent, with fuel and power prices up 13.1 percent.
Policy makers are hopeful that good rains this season will tame food inflation, which spiraled to 16.5 percent in May.
Wildly successful telecommunications spectrum auctions, which brought in fees of $22.8 billion, have eased some of the pressure from India’s fiscal deficit, which the finance ministry has said will likely fall to 4.5 percent of gross domestic product by March 2011, lower than an earlier estimate of 5.5 percent of GDP.
