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LATEST NEWS UPDATES | LPG price hike, rollback within hours

LPG price hike, rollback within hours

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published Published on Nov 2, 2012   modified Modified on Nov 2, 2012
-The Times of India

Within hours of raising cooking gas prices, the government late on Thursday asked oil marketing companies to put on hold the Rs 26.50 hike, calling into question the seriousness of the deregulation plan and casting a doubt over the UPA's commitment to fiscal reforms.

The U-turn came after a volley of protests by the opposition and days before Himachal Pradesh goes to polls, with Gujarat elections to follow. The plan to provide only six subsidized cooking gas cylinders is slowly turning into a fierce political battle and could hurt the Congress' prospects, UPA managers fear.

The subsidy revamp is at the heart of the government's fiscal consolidation plan and Thursday's reversal could seriously undermine any progress that the Manmohan Singh-led coalition was hoping to achieve. The retraction could cause serious embarrassment for the prime minister and finance minister P Chidambaram who on Thursday detailed the seriousness of the fiscal crisis and urged cabinet colleagues to refrain from wasteful spending.

The plan approved by the UPA leadership in mid-September envisaged only six subsidized cylinders per household every year. The rest have to be purchased at the market price that is to be fixed every month. In line with the announcement, prices were revised in October and oil companies followed it up on Thursday by announcing that the market price of cooking gas cylinders would rise to Rs 922, citing costlier imports. The expectation was that prices would top Rs 1,000 in a few weeks.

However, there will be no change in the decision to hike price of commercial cooking gas cylinders.

The fear is that gas would get even more expensive as winter demand peaks in the West and the rupee continues to stay weak against the dollar, making imports costlier. Oil companies are not expecting any relief until summer.

The change in government stance on moving to a market price mechanism coincides with the controversial exit of Jaipal Reddy, who has been replaced by Veerappa Moily.

Sources in the petroleum ministry, however, maintained that the government had not issued any instructions although they did acknowledge that oil marketing companies were informally asked to reverse the hike.

Apart from government finances, the reversal of the hike is bad news for oil companies, which stand to lose a few hundred crore. Already, the three public sector companies — IndianOil, Hindustan Petroleum and Bharat Petroleum — reported losses due to the government's failure to compensate them for selling subsidized fuel.

The Times of India, 2 November, 2012, http://timesofindia.indiatimes.com/business/india-business/LPG-price-hike-rollback-within-hours/articleshow/17053967.cms


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