After arguing against a petro-price cut for weeks, the government moved into the opposite direction on Tuesday. News agencies reported that the price of petrol was likely to be cut by Rs 2 per litre, while Re 1 would be shaved off per litre of diesel.
A formal announcement is likely in Parliament on Wednesday. This will reverse half of the price hike in June, when petrol price was increased by Rs 4 and diesel by Rs 2.
The change in stance came hours after Congress president Sonia Gandhi made public her wish for a reduction in the price of petro-products to "provide relief to people".
Petroleum Minister Murli Deora met the prime minister late on Tuesday to discuss the issue.
Sources in the Prime Minister's Office, however, said there was going to be a last-ditch effort to persuade Sonia to let oil prices remain steady for some time.
The government had so far stuck to the position that there was no economic rationale for a price cut, despite the softening of crude oil prices from a record high of $75 a barrel in August to $57-58 at present.
The slide in price has ensured positive retail margins on petrol, of about Rs 4.50 a litre, though under-recoveries continue on the other three products -- diesel (Rs 0.45), LPG (Rs 114 per cylinder) and kerosene (Rs 14).
But, petrol accounts for just 10 per cent of sales by volume, while the sale of diesel is four times that of petrol.
"The margins on petrol can be taken away. We can afford zero margin on petrol if we have a positive margin on other products," rued an oil marketer.
The largest oil marketer, Indian Oil Corporation, continues to clock under-recoveries of about Rs 50 crore a day on diesel, LPG, and kerosene, though this is less than half of the Rs 100 crore a day posted before the slide in crude oil prices.
"This situation, in fact, proves the merit in accepting the Rangarajan Committee recommendations for a mechanism for automatic correction to price levels reflecting crude price fluctuations," said Deepak Mahurkar, associate director at PricewaterhouseCoopers.
