19.1.13

A fresh burst of reforms



The government took concrete steps to decontrol diesel, cut the base price of CDMA airwaves and raised the supply of subsidised cooking gas, pushing ahead its drive to boost the economy with fiscally sound and business friendly steps and softening the blow for the common man.
Oil companies, empowered to announce small hikes in diesel prices, responded swiftly by raising prices by about 50 paise per litre. They also cut petrol rates by 25 paise, and said they will charge free-market rates for supplies to defence, Railways, commercial establishments and state roadways.
Apart from cheering households by promising nine cylinders of subsidised cooking gas a year instead of six, the government also reached out to oilseeds farmers by imposing a 2.5% duty on crude palm oil. This will help farmers, who were anxious because the price of soyabean has fallen 38% since the crop was sown in July. But the impact of the new levy on the price of cooking oil will be less than Rs.1 a kg.
Steps to improve the fiscal situation include a budgetary ceiling on annuity payments under public-private partnership (PPP) projects, and a decision to make sure that the funds raised from disinvestments are used only for approved purposes such as subscribing to a share issue by state-owned firms or banks to retain 51% stake, or for recapitalisation.
The biggest boost for the fiscal situation may come from diesel, which is sold at low state-set rates, causing oil companies a revenue loss of Rs.73,815 crore in April-December. Apart from reducing the subsidy bill, the move would also pave the way for intense competition in the fuel market as Reliance Industries and Essar Oil will now find it viable to sell diesel at their fuel pumps.
The measures, announced after a hike in rail fares and just before the ruling Congress party’s strategy session at Jaipur, signal the government’s efforts to keep the economy firmly on track and preclude any downgrade of the country’s sovereign rating.


Industry cheered the announcements. LK Gupta, MD & CEO of Essar Oil, which has 1,400 pumps and is building another 200, welcomed the move to give state oil firms the power to raise prices gradually, but said more was needed.
Anand Mahindra, chairman, Mahindra & Mahindra, said the decision on diesel was a bold step.
The change in fuel prices would have an impact on the automobile sector, where consumers have increasingly opted for diesel vehicles because petrol prices are relatively higher.
Deutsche Bank equity analysts have estimated that an increase in diesel price by 50 paise a litre every month will reduce 2013-14 oil under-recoveries by Rs.21,500 crore. After factoring in the additional cost of subsidised LPG, the gain would be Rs.12,000 crore.

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