Decks cleared for oil price hike

By Sushma Ramachandran

NEW DELHI, SEPT. 23. The National Democratic Alliance (NDA) tonight gave the green signal to the Government to tackle the oil crisis facing the economy, paving the way for ``hard decisions'' to resolve the situation. The Government, on its part, made it clear that it would opt for a combination of price hike, cut in duties and oil bonds to curb the mounting oil pool account deficit. The Petroleum Minister, Mr. Ram Naik, has said the announcement will be made ``in due course of time''. (According to PTI, Mr. Naik tonight said a decision would be taken before month-end.)

Evidently, the Government would like to watch the market situation before taking a final decision on the oil price hike especially with the latest U.S. move of releasing 30 million barrels of oil from the country's strategic reserves. Prices in the international market have already begun to move downward.

In any case, despite widespread speculation, NDA convener, Mr. George Fernandes, who briefed newspersons after the coordination committee meeting, stressed that no one opposed a hike. The oil crisis was discussed at length after a briefing by Mr. Naik, and various suggestions were put forward. Everyone understood the problem with the oil pool deficit set to touch Rs. 24,000 crores.

The only caveat by the NDA, Mr. Fernandes said, was that ``care should be taken to see there is no extraordinary burden put on the people while at the same time taking care of the pool deficit''. But the package of measures, including tax cuts, was being left to the Government's discretion. He said everyone - ``the whole world'' - was aware of the gravity of the situation and the paucity of options, indicating that even leaders of States going to the polls in a few months did not oppose the hike.

However, there are some doubts still over whether the increase will be across-the-board on all products or a selective one even though Mr. Naik told reporters, after the Cabinet meeting in the morning, that prices of all products under the administered price mechanism (APM) would have to be raised. Subsequently, however, the Information Technology Minister, Mr. Pramod Mahajan, hinted that some product prices might be raised but others could remain unchanged. Mr. Naik briefed the Cabinet on the oil price scenario and later did so for the NDA constituents.

Enquiries here reveal that differences persist between the Finance and Petroleum Ministers over the quantum of cut in duties on petroleum products. The Finance Ministry is questioning the figures for revenue collections being quoted by Petroleum Ministry officials. North Block insists that the bonanza expected in both excise and customs due to the steep increase in world oil prices will not be as much as is being projected. Thus the extent of duty reduction, whether in customs or excise, is still being worked out.

Simultaneously, Mr. Naik has appealed to State Governments to reduce sales tax on petroleum products by five per cent to soften the impact of the price hike on the public. He briefed the Cabinet about the prevailing scenario in the wake of skyrocketing international prices. ``We have no option but to increase the prices of all the five products under the administered price mechanism,'' he said referring to diesel, kerosene, petrol, LPG and aviation turbine fuel.

The Minister made it clear that there would not be much delay in making the announcement.

Mr. Naik, who said the decision to raise prices need not go to the Cabinet, pointed out that the oil pool deficit had become unmanageable. It was expected to reach Rs. 24,000 crores by year- end.

He stressed that there could be no further delay in raising the prices, as the burden of the high international prices had not been passed on to consumers in March when kerosene and LPG prices were raised. ``We have reached the limit,'' he said but stressed that the price increase would be kept within a limit which could be borne by consumers.

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