News Detail

The rising under-recoveries on diesel, which has been a constant worry for the UPA Government, have been again pegged upwards at INR 6.80 per litre on the ‘aam admi’ fuel for the fortnight effective from 01.05.2014. With no hike in its prices having taken place since two months, the graph is only expected to go upwards. The reason behind this is being attributed at a ‘poll-conscious’ Government holding back diesel price hike.

Though the Government had in January 2013 partially deregulated diesel prices by allowing oil marketing companies (OMCs) to hike it by 50 paise on a monthly basis till the time the losses on sale of fuel could be wiped out, sources privy to the development said that owing to political meddling, the desired effect has not been achieved. In addition to this the fact that rupee has been stable since October 2013 (after having depreciated to an abysmal level of 68.85 to a dollar), and there has been no drastic surge in crude prices, yet the under-recoveries on diesel have been pegged to surge, has made the situation rather ironical.

When asked as to why there has been a surge in diesel under-recoveries despite things being normal, officials in the Petroleum Ministry did not have a convincing reply. However, observers attributed this to the political meddling in economic decisions, as sources on condition of anonymity said that the 50 paise monthly hike in diesel prices has been stalled since the last two months owing mainly due to the ongoing Lok Sabha polls.

Moreover, they even ruled out any hike in diesel price for the month of May also, indicating that any future increase has now been left on the doorstep of the new Government which comes to power at the Centre after May 16 (the day the elections results are to be announced).

The present scenario on rising under-recoveries, therefore, is going to be a worrying trend for the OMCs, who have always complained about how this has constantly affected their finances. As per the data released by the Government last week, the under-recovery, or revenue loss, applicable on diesel for the first fortnight effective May 1 has been pegged upwards at INR 6.80 per litre.

The hike is steep as the under-recovery in the second fortnight of April 2014 had stood at INR 5.49 per litre for diesel.

“In the case of PDS kerosene and domestic LPG, the under-recoveries for the first fortnight of May 2014 will be INR 33.85 per litre (INR 34.43 per litre in last fortnight) and INR 449.13 per cylinder (INR 506.06 per cylinder in last fortnight) respectively,” the Petroleum Ministry had said in a statement last week.

It further added that “OMCs, effective 16.04.2014, are now incurring combined daily under-recovery of INR 342 crore on the sale of diesel, PDS kerosene and domestic LPG. This is higher than INR 337 crore daily under-recoveries during previous fortnight”.

Since the Government in January 2013 decided that diesel prices should be raised in small doses of 40-50 paise a liter every month till losses on the fuel are wiped out, diesel price has risen by a cumulative INR 8.33 a litre in 14 instalments.

The ministry on its part maintained in the statement that the rise in diesel under-recoveries has been caused by the rupee’s depreciation against the dollar and the firming up of international oil prices. As a thumb rule, every time the domestic currency depreciates by one rupee per dollar, total under recoveries of OMCs go up by INR 8,000 crore. Also on every one dollar surge in the prices of crude oil in international markets, under recoveries rise by nearly INR 4,300 crore.

As it turns out, under recovery for the fortnight effective from December 1, 2012 stood at INR 10.03 per litre. Since then, diesel prices have been hiked by INR 8.33 per litre through the monthly 50 paise increase by OMCs. Also the rupee has been stable and there has been no great surge in crude prices in the recent past, yet the under-recoveries on diesel have been rising. This, analysts said, was mainly due to no monthly hike undertaken by OMCs since the last two months. The monthly hike was the only reason why losses were under control, now with these gone, there is a surge, they added.

Source-On Request