Oil companies have hiked diesel prices by 45 paise per litre starting Friday while cutting petrol price by 25 paise per litre. The move to hike oil price has invited opposition from various quarters including UPA allies DMK and BSP.
The announcement came after the central government allowed state-owned oil companies to revise the price of diesel besides increasing the number of subsidised LPG cylinders per family to nine from the current cap of six.
It is reported that oil marketing companies would hike diesel price by 50 paise every month, which would amount to about ₹6 per year. The current diesel price, which is ₹47.15 per litre, would touch ₹53.15 by the end of the year if OMCs hike oil price as reported.
Diesel accounts for 59 per cent of the estimated ₹160,000 crore fuel subsidy bill in 2012-13, so the decision to hike the price would cut the subsidy bill by ₹12,900 crore.
The Indian government on Thursday hiked the number of subsidised LPG cylinders per family to nine from the current cap of six and allowed state-owned oil companies to revise the price of diesel.
Diesel remains highly subsidized while petrol prices were deregulated in 2010.
However, experts are of the opinion that price hike in oil products like diesel could cause inflation.
"It's kind of ambiguous. But if they're able to push through the increases over a course of six to seven months, it will improve the prospects for next year's fiscal deficit. However, it will be inflationary. This kind of signals there will be regular increases. It will push up inflation expectations, and will lead to second round effects," A. Prasanna, Economist, ICICI Securities, Primary Dealership Ltd, Mumbai, told Reuters.