The Kirit Parikh committee report submitted to the petroleum ministry has suggested market-determined pricing for petrol and diesel. The panel has also recommended linking the cooking fuel, LPG and kerosene distributed through the Public Distribution System with the increase in per capita GDP of urban and rural population.

The committee was appointed last year with the aim of forming a fuel policy for the government. The report was submitted to the Petroleum Minister Murli Deora. The government has directed the ministry to process the report immediately and place it before the cabinet.

As per the recommendations the price of auto fuel may rise to the tune of Rs 3 a litre on petrol and Rs 3 to Rs 4 on diesel. The panel has also recommended additional excise duty of Rs 80,000 on diesel cars.

In the cooking fuel, the price of kerosene is worked by the committee to go up by Rs 6 a litre based on the 66 per cent increase in agriculture GDP since March 2002. The Kerosene prices were last revised to Rs 9 a litre. And for LPG the recommendation is to raise the price by at least Rs 100 which would translate to the total price of a cylinder to about Rs 381. However, if the 84 per cent increase in GDP for urban population since 2004-05 is considered the price for LGP works out to be much higher at Rs 485.

The panel has said that "greater fuel efficiency of a diesel vehicle should not be penalized" however the diesel car users must pay the same amount of tax as petrol car users.

Addressing the concerns about the impact of increasing pricing on the inflation, Mr. Parikh said that the impact of 'whether the increase is funded through the fiscal deficit or through a direct price increase' would be the same on inflation in the country.

In order to reduce the loss suffered by the OMC from selling cooking fuel, the committee suggested periodic reductions in Public distribution system kerosene allocations based on the level of electrification in villages along with periodic price rises. The aim is for a smart card system with a UID through which the government will be able to transfer direct subsidy.

The committee suggested that the Upstream oil companies should share more of their revenues from nominated blocks. It rejected the ONGC formula for charging a windfall tax if the price of crude rises in the international market.

ONGC has said that the recommendations have taken into account the financial health of upstream and downstream oil companies and will also make the customers realize the real prices of fuel to address the demand side management.

The move is to benefit private players as the committee has suggested that each company should be able to determine its own price to compete in the market.

The report said "The ministry should decide suitable amendments to the existing notifications and orders prescribing import parity price and trade parity price so that individual company will have full freedom to decide its own basis, norm or formula to derive prices of petroleum products and compete with others in the market."

Essar Oil Chief S Thangapandian was positive about the report and said that idle assets of the company can be activated and employment opportunities will be created.