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India’s Oil Ministry Said to Recommend Increasing Diesel Prices

India’s oil ministry has proposed increasing retail diesel prices by 1 rupee (2 cents) each month until subsidies on the fuel are eliminated, according to an official with direct knowledge of the matter.

Prices of diesel, cooking gas and kerosene will rise if the government accepts the recommendations of a committee headed by former bureaucrat Vijay Kelkar and appointed by the finance ministry, the Press Trust of India reported Jan. 4. The oil ministry is keen to implement the Kelkar committee’s proposals and the matter is expected to come up before the cabinet, the person said, without specifying a timeframe. Reuters reported the plan yesterday.

An increase in energy prices will help reduce the government’s fiscal deficit, which has ballooned because of subsidies on food, fuel and fertilizer, and boost earnings at refiners and explorers. The budget gap may widen to 6.1 percent if no action is taken on subsidies, the Kelkar panel said, a level termed “unacceptable” by Finance Minister Palaniappan Chidambaram.

India’s goal is to narrow the budget gap to 5.3 percent of gross domestic product in the year ending March 31 from 5.8 percent last fiscal. The country may face a downgrade in the next 12 months to 24 months as the government is likely to miss the deficit target, Andrew Colquhoun, Hong Kong-based head of Asia-Pacific sovereigns at Fitch Ratings, said Jan. 8.

“It’s in the interest of the country to kill subsidies,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai. “Politics should not deter the government, as the fruits of this decision shall be shared by every citizen.”

State-owned refiners such as Indian Oil Corp. and Bharat Petroleum Corp. sell fuels below cost and explorers such as Oil and Natural Gas Corp. share a part of the government’s subsidy.

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