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Oil minister rules out rolling back diesel price hike

Oil minister Veerappa Moily today categorically ruled out rolling back the decision to allow state-run oil retailers raise prices of diesel by up to Rs 0.50 a litre each month to gradually align them with market rates, in a bid to reduce an expanding subsidy bill and budget deficit.
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Jaipur:

Oil minister Veerappa Moily today categorically ruled out rolling back the decision to allow state-run oil retailers raise prices of diesel by up to Rs 0.50 a litre each month, citing economic concerns.

The government plans to gradually align the cost with market rates in a bid to reduce the ballooning subsidy bill and budget deficit.

"Diesel subsidy has to take place as it is necessary ... The red flag and concerns that have been raised are natural, but we also have to take care of the finances and India's sovereign rating, among other things," Mr Moily told reporters in Jaipur, on the sidelines of the Congress Party's Chintan Shivir.

After including local sales tax or VAT, price of diesel for retail users went up by 50 paisa to Rs Rs 47.65 a litre in Delhi. Bulk users, which consumer around 17.77 per cent of the total diesel sales in the country, will pay Rs 56.88 a litre in Delhi.

Mr. Moily said diesel and petrol had been deregulated by the BJP-led NDA government in 2002, but the UPA government had continued to subsidise diesel, the nation's most consumed fuel.

"This (deregulation) has been going on even during the days of NDA," he said. "(There were demands that) there should be deregulation of diesel and this is the only commodity where we have the regulations."

Although the government has pared its economic growth projections for the year, it raised its forecast for diesel consumption ahead of the decision.

Diesel demand in the country is expected to rise 8.3 per cent in the fiscal year ending March, to 1.43 million barrels per day (bpd), up from a prior forecast of 5.9 per cent.

The diesel hike comes at a time when Railways is facing an acute financial crunch. Earnings from passengers and freight have failed to meet the target in the current fiscal year. The annual plan allocation has also been reduced from Rs. 60,000 crore to Rs. 51,000 crore this year.

As per the government's decision, bulk consumers such as Railways and state transport corporations will have to buy diesel at market price. The Railways procures about 250 crore litres per year from oil companies for its fleet of 4,500 diesel locomotives hauling both passenger and freight trains.

Railways had recently hiked passenger fares in all classes to earn additional revenue of Rs. 6,600 crore in a year. The passenger fare hike will come into effect from January 22.

The three oil PSUs - Indian Oil, Hindustan Petroleum and Bbharat Petroleum - supply fuel providing a subsidy of 30 paisa per litre as Railways is a bulk consumer of diesel. However, with the subsidy gone, Railways will have to buy fuel at market rate, which is likely to hit hard the national transporter.

Asked about the impact of the decision on Railways, Mr. Moily said it will "largely" have no impact as bulk buyers purchase other inputs and fuels at commercial rates. "They are all running commercially and ultimately they have to find their own budget," he said.

(With inputs from agencies)



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