The relentless rise in international oil prices that last week touched an all time high of $135 a barrel has forced the government to mull options to save state-run firms, which expect a revenue loss of Rs 200,000 crore (Rs 2000 billion) this fiscal on sale of petrol, diesel, domestic LPG and kerosene.
"One of the options being considered is deregulating petrol prices," an official said. "The country's preferred auto fuel diesel will, however, continue to be subsidised even though a marginal Rs 2-3 a litre hike in prices may be announced."
Petrol is currently being sold at a loss of Rs 16.34 a litre and diesel at Rs 23.49 per litre. Deregulating petrol price would mean that its prices would move in tandem with international prices.
He said the move is being considered after Finance Ministry declined Petroleum Ministry's request for lowering customs duty on crude oil to zero from 5 per cent and that on petrol and diesel to 2.5 per cent from current 7.5 per cent.
The oil ministry had also asked for lowering of excise duty on the two fuels but Finance Ministry is not obliging.
Petrol has negligible impact on inflation and so even if it is deregulated it would not contribute the 3-and-half year high inflation rate of over 8 per cent, he said.
Diesel on the other hand is used by transport industry and replicating the same for the fuel would have cascading effect on inflation.
However, deregulating petrol would lower the revenue losses by just Rs 20,000 crore (Rs 200 billion). Half of the current estimates are on account of diesel rates.
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