Market leader Indian Oil Corporation indulged in grand standing on Tuesday by saying state-run retailers would raise petrol price by almost Rs 10 per litre, if the government did not reduce excise duty or did not compensate their Rs 49-crore daily loss on the fuel, taking a cue from the RBI governor D Subbarao.

“We have been very patient, not raising prices since December despite our cost of production spiraling. But there is a limit to which we can borrow money and produce fuel for the country,” said chairman R S Butola. 

The bold public stand by a state-run oil marketing company chief on fuel prices is unusual. No wonder many industry insiders say the oil ministry, using Subbarao’s statement earlier in the day, could have engineered it with the aim of pressuring the finance ministry to cut excise duty . An excise duty cut would help avoid raising petrol price too steeply.

Subbarao set the stage during his monetary policy review by saying: “Overall, from the perspective of vulnerabilities emerging from the fiscal and current account deficits, it is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true costs of production.”
 

Though petrol is officially free from regulation, the oil companies do not move without a cue from the oil ministry. The ministry did not allow the retailers to raise fuel prices due to electoral and coalition compulsions. Besides losses on petrol, the state fuel retailers also lose another Rs 573 crore a day on diesel, cooking gas and kerosene. Butola said oil PSUs in the first 15 days of April lost Rs 745 crore on petrol. “We have suggested that the government should temporarily end deregulation and give subsidy to make up for the difference between cost of production and sale price.”

The states also levy VAT or sales tax ranging from 15% to 33% (Rs 10.30 to Rs 18.74 per litre), which too can be cut to avoid a price hike.