BUSINESS NEWS:-India Panel Says Government Should Free Fuel Prices (Update1)

Feb. 3 (Bloomberg) -- India must free gasoline and diesel prices from government control to help develop a viable fuel pricing policy that will ease revenue losses for state-owned refiners, a panel set up by the government said.
Prices of kerosene and liquefied petroleum gas must be increased, Kirit Parikh, a former member of the nation’s Planning Commission, said today in New Delhi after submitting his report to the oil ministry. Prices of kerosene should be raised by 67 percent to 15 rupees a liter and LPG by 100 rupees a 14.2 kilogram bottle, he said. The recommendation may be put up for the cabinet’s approval in a week, Oil Minister Murli Deora said.
“This is a good time to free prices because petrol and diesel price increases will be very low,” Parikh said. “You wouldn’t wait for crude to touch $120 a barrel again.”
The panel, proposed in the federal budget presented in July, is the third attempt by the government since 2002 to align fuel prices with crude costs, a step that will help the nation’s state refiners. Refiners in China are assured of profits because they can adjust gasoline and diesel prices when oil changes by 4 percent over 22 working days. Indian refiners depend on subsidies as compensation for selling fuels below cost to curb inflation.
Shares of Indian Oil Corp., the nation’s largest state-run refiner, fell 0.6 percent to 315.85 rupees in Mumbai trading today, compared with a 2.1 percent increase in the benchmark Sensitive Index. Bharat Petroleum Corp. rose 2.6 percent to 580.05 rupees and Hindustan Petroleum Corp. climbed 1.2 percent to 356.15 rupees. The report was submitted after the market closed.
‘Cushioned Economy’
“A quick and immediate freeing of fuel prices may not be possible,” Abheek Barua, chief economist at HDFC Bank Ltd., India’s third largest, said in a phone interview. “Price control has cushioned the economy from the shocks of extreme volatility in commodity prices. The transition will have to be very slow.”
Prices of gasoline may increase by about 3 rupees a liter and diesel by about 4 rupees a liter if the government were to increase prices now, Parikh said. Gasoline costs 44.63 rupees a liter in New Delhi and diesel 32.87 a liter, according to Indian Oil’s Web site.
Tax Structure
The panel was asked to examine the current taxation structure of fuels, especially gasoline and diesel, and suggest how state refiners can be reimbursed if the government doesn’t allow them to charge market prices, the oil ministry said in a statement in September.
“We are very keen, not just to discuss, but see what best can be done for both consumers and the government,” Minister Deora told reporters today.
India dismantled the so-called administered-pricing mechanism in April 2002, allowing oil refiners to set fuel prices for a few months. Panels headed by C. Rangarajan, chairman of Prime Minister Manmohan Singh’s economic advisory council, recommended in 2006 that the government link fuel prices to crude. The same advice was repeated in a report by Planning Commission member B.K. Chaturvedi in 2008.
State-run oil producers Oil & Natural Gas Corp. and Oil India Ltd. have been asked to pay a part of their profit from selling crude as subsidy. The companies will share profit from fields they won before the government started auction of these areas in 1999, Parikh said.