The price of diesel could increase substantially if the government is to accept the Prime Minister Economic Advisory Council’s advice.

“There is an overdue need to make some adjustments in the price of diesel, even if this is done in a phased fashion,” said the council in its Review of Economy (2011-12) released on Wednesday.

It said that while the issue of decontrolling diesel prices has been under discussion for a considerable period of time, not much has been done and the partial decontrol of the prices of motor spirit has resulted in additional distortions.

“On the fuel side, we have a large backlog in the adjustment of prices of sensitive petroleum products, especially diesel. Some rationalisation may help to make the shortfalls in revenue for LPG and kerosene more manageable,” said the review.

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It said there has to be adjustments made to the selling prices of sensitive refined petroleum products to cover costs and reduce the huge subsidy borne by the government and the oil companies.
Diesel prices were last hiked in June 2011.

PSU oil marketing companies are losing over Rs 12 per litre on the sale of diesel alone. These companies had lost Rs 97,313 crore on the sale of diesel, kerosene and petrol during April-December last year.

They are currently incurring a daily under-recovery of Rs 465 crore on the sale of diesel, PDS kerosene and domestic LPG.

The council also recommended decontrol of urea prices.

“Similarly, the partial reform in the fertiliser subsidy regime of introducing nutrient-based subsidisation will not be effective unless the price of urea is decontrolled or at least raised substantially," said the review.

It said that large volume of food subsidy continues to be plagued by poor targeting.

“Of course, the volume of subsidies on both oil and fertilisers has continued to proliferate due to continued elevation in the price of crude oil and the depreciation of the rupee," the review said.

The panel had forecast a 7.1 per cent growth in the current fiscal on the back of good output in farm and construction sector, which is a shade higher than the 6.9 per cent projection made by the Central Statistical Organisation (CSO).