The government on Thursday raised the annual cap on supply of cheap cooking gas to nine cylinders from six and gave freedom to state-run oil companies to raise price of diesel "from time to time".
The new cap on cooking gas would come into effect from April 1, oil minister M Veerappa Moily said after the meeting of the Cabinet's panel on political affairs that took the decisions.
As a fallout of the higher cap, the consumers would now be able to avail five cheap cylinders between September 14 last year, when the cap was imposed, and March 31 this year. This level was earlier set at three cylinders during the period.
The decision on diesel would imply a partial float of the fuel's price under which the subsidy would be frozen at a particular level and retailers would revise pump prices in tandem with the trend in international fuel trading hubs and crude oil.
The increase in the cap on subsidized cooking gas cylinders would come as a relief to consumers. More so since it did not come with an increase in the current price, as was suggested by a finance ministry panel. Together, the two would help blunt some of the political criticism that is expected from the Opposition parties.
But this sense of relief could soon be over once the retailers start raising pump price of diesel which has the potential of pushing up cost of daily living and prices of daal-chawal.
On the surface, the decision to allow retailers freedom to revise price of diesel is not new. The government had taken an in-principle decision to allow market pricing of the main transportation fuel when it freed up petrol pricing in June 2010.
So seemingly Thursday's decision marked implementation of that decision. But Moily's statement after the CCPA meeting that the government would continue to subsidise the fuel clearly indicates a partial float.
In the current scenario, the government is expected to freeze the subsidy at roughly Rs 5 a litre and the remaining loss of Rs 5 can be covered over the next few months by raising the pump price in small doses, say in tranches of Rs 1-2. And if international prices of the fuel and crude comes down in the meantime, it will do away with any need to raise price further.
This is broadly in line with the recommendations of a finance ministry panel tasked with suggesting ways for fiscal consolidation.
Moily said the decision to raise the cap on cheap cooking gas would cost the government Rs 9,300 crore more in subsidy. He said the subsisdy burden on diesel was expected to be Rs 94,000 crore. Together with kerosene, the total fuel subsidy is expected to be at Rs 160,000 crore this fiscal.