The expert group set up under the chairmanship of Dr Kirit Parikh is likely to submit its report on Pricing Methodology of Petroleum Products to the government on October 30, and the street says it'll be surprised if action is taken on most of the recommendations.
In the run upto five assembly polls and the 2014 general elections, Kirit Parikh is likely to recommend an immediate Rs 5/l diesel price hike followed by a fixed subsidy cap of Rs 6/l to the oil marketing companies IOC , HPCL and BPCL . "This would imply freeing of price of diesel beyond this cap on subsidy. In future, oil companies should be permitted to revise the above the subsidy cap on their own," writes Parikh in the summary of his report.
Calling for deregulation of diesel in one year's time, Parikh says, "The expert group recommends that the fixed subsidy of Rs 6/l be reduced gradually and removed through monthly revisions over the next one year."
On the contentious issue on the pricing methodology of diesel, Parikh is likely to suggest status quo and the continuation of trade parity pricing. This expert group had been set up to revisit the pricing methodology of diesel, LPG and Kerosene, and also determine a formula that would not over-compensate oil marketing companies (OMCs).
The finance ministry had been adamant on switching from the current import parity pricing to export parity pricing, and that had the OMCs and oil minister Veerappa Moily up in arms. The Prime Minister himself had to intervene to settle differences, and it was decided this expert group led by Parikh would have the final say.
"There is no need to tinker with the existing pricing formula, which, even if modified, will not solve the problem of mounting under recoveries," justifies Parikh on continuing with trade parity and not switching to export parity as desired by the finance minister.
"There is no single or unique formula which can be said to represent the correct method for domestic prices in India that would not distortion. Therefore, the best course of action is to free the market from price controls at the earliest," Parikh goes on to write.
Besides the immediate diesel price hike, Parikh is likely to call for a one-time kerosene price hike of Rs 4/l and LPG by Rs 250 per cylinder. Besides this, Parikh is in favour of reducing the number cap on subsidised LPG cylinders to six from the current nine and is likely to recommend freeing up LPG prices via gradual hikes over the next three years.
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