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Diesel & LPG prices decoded: Save Rs 1500, lose thousands!

  • Dailybhaskar.com
  • Jan 18, 2013, 12:20 PM IST
LPG, diesel price hike, fuel subsidy, petrol price decontrol
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LPG, diesel price hike, fuel subsidy, petrol price decontrol

New Delhi: The long delayed partial deregulation of diesel price has finally happened, resulting in a hike of 40-50 paise a litre per month for retail customers and nearly Rs 11 for bulk consumers. 
 
The government also raised the cap on subsidised LPG to nine cylinders per household from six.
 
What do these steps mean for the average consumer of diesel and LPG mean? How will it effect your household expenses? Here's a closer look at the math.
 
(Photo: Reuters, Getty Images) 

Find out more by clicking on the following slides

  • 2 of 5
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    On June 2010, the government first allowed OMCs to decide petrol price, with the stated purpose of helping the companies recover losses and rid the government from the financial burden of subsidies. But the actual hike in price- that of a steep Rs 5- came right after the January 2011 Assembly Elections in West Bengal and Tamil Nadu got over. However, no such hike came while the February 2012 UP elections were underway, despite the significant Rs 4 per litre loss being incurred by OMCs during that period.
     
    Moreover, when petrol was first de-controlled, oil marketing companies said petrol prices will be fixed in line with fluctuation in international prices of crude oil.
     
    However, even when price of crude went down, OMCs announced a hike in the price of the fuel, citing a weaker rupee (resulting in higher import prices) as the reason.
     
    Since June 26, petrol price has been hiked 19 times and reduced a mere 7 times. The idea is to effect minor but frequent hikes so that public outcry against the hike remains relatively muted.
  • 3 of 5
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    An OMC pays Rs 778.12 for a 14.2 kg LPG cylinder. Add Rs 38.31 as inland freight and delivery fee, Rs 19.33 as marketing cost and profit and Rs 38.68 as LPG bottling fee to that amount, and the final price of an LPG cylinder before VAT and excise duty becomes Rs 874.44.
     
    The government allows a subsidy of Rs 22.58 under Notified Scheme 2002. The OMCs then face a loss of Rs 478.45 to sell LPG cylinders at Rs 373.41 each to dealers. VAT and excise duty then gets added to this amount. It can be mentioned here that Delhi government does not charge VAT on cylinders. Over and above this amount, OMCs pay the dealer-distributors Rs 37.25 as commission. In this way the price of a subsidised cylinder can be calculated at Rs 410.50 in Delhi.
     
    In other states, the final cost of an LPG cylinder rises with governments applying 5% VAT charges.
  • 4 of 5
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    Indirect effects:
     
    Higher transportation charges for goods
    Higher cost of food items, construction material, etc
    Higher bus fare, diesel-run cabs, auto, etc
    Pressure to hike railway freight charges
    Higher running cost of tractors, borewells, threshers, etc, causing pressure on food prices
     
    Direct effects
     
    Higher running cost of diesel cars
    Lower sale of diesel cars
  • 5 of 5
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    LPG, diesel price hike, fuel subsidy, petrol price decontrol
    Diesel price hike: Why right ahead of Budget 2013-14?
     
    1. The government needs to mop up revenues for the upcoming Budget. A part of the money required to fund flagship programmes under the 12th Five Year Plan- 16 out of which  require Rs 15.47 lakh crore- will have to come from somewhere. The easiest source of this money is, of course, the Indian middle class.
     
    2. The government also needs to take action that improves market sentiments and makes the business environment appear friendlier to foreign investors. The Sensex rose 146 points and crossed 20,000 points soon after the announcements. The move sends positive signals to rating agencies on the nation's deficits.
     
    3. Finally, taking tough decisions before the Budget makes the task of preparing a populist Budget easier. A populist Budget on the eve of General elections reflects well on the government and results in political benefits.

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