Govt building a bunker for Syria attack; readies a 4-point plan for fuel

Rajeev Jayaswal & Nithya Balakrishnan

NEW DELHI: The math is simple, but scary: since mid-April, import cost of fuel has jumped 30% thanks to a 9.9% jump in crude prices and 20% fall in the rupee. This also has a knock-on impact on subsidy and fiscal deficit.

The options - changing the fuel pricing/subsidy regime again - are politically risky but, say oil ministry officials, absolutely necessary. They point to the US-Syria tensions and currency market volatility to say current pricing is "becoming absolutely unsustainable".

US crude rose $3.2 a barrel to the highest in more than two years while Brent crude rose similarly to $117.3 on Wednesday on worries that the conflict in Syria may obstruct Middle-East oil supply. Markets are jittery as Western nations led by the US seem ready to attack Syria because of its alleged use of chemical weapons.

Four-Point Oil Plan

Raise diesel prices by Rs 5/litre sometime after the Parliament session ends on September 6. This will reduce revenue losses on fuel by half, since the gap between diesel pump price and market-linked price is around Rs 10.

Import more from Iran; the 13 million tonnes of Iranian crude import is already planned. Iran accepts rupee payments. This, oil ministry officials say, will save about $10 billion in foreign exchange. But they acknowledge the Iran option will need approvals from the foreign ministry and PMO, given strong US reservations on the issue.


Switching to a "per-litre subsidy model" for diesel. In this system, the fuel price will be linked to market levels and retailers will be compensated for every litre of diesel sold, according to the subsidy level agreed on.

Raise domestic oil and gas output, particularly from Cairn-operated Rajasthan oilfields, from about 175,000 bpd to 210,000 bpd in the immediate future and eventually 300,000 barrels by the end of this fiscal.

Some finance ministry officials argued against a diesel price hike, citing concerns about inflation. "Let's wait for sanity to return to currency markets and then take a call on diesel," an official said.

Many experts disagree. Kirit Parikh, former Planning Commission member, said, "Any impact on inflation will be merely short term. If price regulation is left untouched, in 2-3 years, growth rate will be much lower, fiscal deficit and interest rates will rise and investment will suffer."