Diesel Prices Hiked by Rs 5 + LPG Restricted to 6 Per Year – Fiscal Reform Finally

Finally, the Manmohan Singh Government has taken a strong decision to hike the Fuel Prices, especially Diesel where State Oil Marketing Companies had been losing heavily. Effective Midnight, the following measures come into force,

• Hikes diesel price by Rs.5/litre
• LPG subsidy limited to 6 cylinder per family per year which means 7th cylinder you buy for a family will come at Rs.750/cylinder versus the rate of Rs.399/cylinder
• Some reduction in excise duty
• Branded/Power diesel will be sold at market rates

That’s the difference the change in leadership makes – Mr. P Chidambaram replacing Lethargic Communist style 80’s FM with Arrogance and Ego, Pranab Mukherjee.

We expect FY13E fuel under-recoveries to be about Rs1680bn, higher than Rs1380bn in FY12 as the OMCs are still losing Rs13.5/l on Diesel, Rs33/l on Kerosene and Rs347 per LPG cylinder. While we were expecting a Rs3/ltr hike in diesel, there was uncertainty around the timing and thus today’s announcement could have a positive market reaction.

Now ball is in the RBI court to cut rates on 17th september by 25 bps, the impact of LPG and diesel hike on WPI inflation rate will be 150 bps so in coming months RBI may not be able to cut rates so it have to move on 17th September 2012