Diesel prices up Rs 3 per litre, kerosene Rs 2 per litre and cooking gas Rs 50 per cylinder

The government took the step of raising diesel, cooking gas and kerosene prices for the first time in one year and cut taxes on fuel, delivering a bonanza for cash-strapped oil retailing firms but upsetting budget calculations of households and the economy.

Diesel prices are up Rs 3 per litre, kerosene Rs 2 per litre and cooking gas about Rs 50 per cylinder. The timing is ironical as the steep rise comes a day after international crude prices fell sharply but justifiable as crude oil prices are much higher than June last year, since when prices have been frozen.

Petrol prices, which have been decontrolled and raised several times, were untouched. The government also withdrew the 5% Customs duty on crude oil, and cut excise duty on diesel by Rs 2.6 a litre, losing tax revenue of Rs 49,000 crore and further boosting the finances of oil firms.

It also cut the import tax on petrol and diesel to 2.5% from 7.5%. Petrol and diesel are usually not imported in India but the import price, which includes Customs duty and freight, is always used by fuel retailers to calculate "under-recoveries" or the notional loss by selling fuel below the landed price of imported products.

State oil firms would still suffer an "under-recovery" of Rs 120,000 crore in 2011-12. In other words, they would have together earned an additional Rs 1,20,000 crore in the current fiscal year if fuel prices had been raised to the level of landed cost of imported fuel.
Source-Economic Time