17 Feb 2010

Expert Committee recommends non-distortionary petroleum pricing

The Kirit S. Parikh Committee 'Expert Group on a Viable and Sustainable System of Pricing of Petroleum Products' submitted recently to the Ministry of Petroleum and Natural Gas, Government of India, being of the view that a "viable long-term strategy for pricing major petroleum products is required" where the "viable policy has to be workable over a wide range of international oil prices and has to meet the various objectives of the government" and it should also "limit the fiscal burden on government and keep the domestic oil industry financially healthy and competitive", has recommended that "petrol prices should be market determined both at the refinery gate and at the retail level". 

The Committee has accordingly recommended inter alia the following;
  • a way needs to be found to collect the same level of tax that petrol car users pay from those who use a diesel vehicle for passenger transport;
  • price of PDS kerosene needs to be increased by at least Rs.6/litre so that the share of expenditure on kerosene in the total consumption expenditure of rural households remains at the same level as in 2002. Thereafter, price of PDS kerosene be raised every year in step with the growth in per capital agricultural GDP at nominal price;
  • prices of domestic LPG can be increased by at least Rs. 100 per cylinder. Thereafter, the price of domestic LPG should be periodically revised based on increase in paying capacity as reflected in the rising per capita income. The subsidy on domestic should be discontinued for all others except the BPL households once an effective targeting system is in place.

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