Diesel subsidy off!
20 Oct 2014 4:53 AM IST
The decision, which was immediately hailed by corporate captains and their collaborators in the media, bureaucracy, academia and policy fraternity as ‘long overdue’, ‘historic’ and ‘a welcome hard decision’, implies that retail diesel prices will henceforth reflect international movements in prices.
Thus, from now on, any sharp rise in global prices of this fuel would lead to corresponding inflation in the country through an across-the-board rise in transport costs.
In fact, as a result of the move, the price of diesel was lowered by Rs 3.37 per litre with effect from the intervening midnight of Saturday-Sunday. This is the first reduction in diesel rates in over five years. Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86. Diesel prices were last raised by 50 paisa on September 1 and cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013.
There couldn’t have been more opportune time for the decision. Oil prices are near a four-year low and two major state elections are out of the way. Brent crude has fallen 25 per cent this year to around $83 per barrel and expectation is that it may not cross USD 100 barrel anytime soon.
The process was set in motion by the previous UPA government when it eliminated controls on petrol prices in 2010 and in January last year decided to raise diesel prices by up to 50 paisa a litre every month. The result has been that petrol prices have moved in tandem with global cost and retail rates being reduced on five occasions since August on falling oil rates. Prices have cumulative come down by close to Rs 7 per litre in last two-and-half months.
On diesel, the entire under-recovery or loss has been eliminated and oil firms started making profit from second half of September. The over-recovery or profit has since reached Rs 3.56 per litre. Deregulation would mean that the government and state-owned explorers including Oil and Natural Gas Corporation (ONGC) and Oil India Ltd are no longer subsidising diesel.
Finance Minister Arun Jaitley had budgeted Rs 63,400 crore for petroleum subsidies which was 25 per cent lower than previous fiscal. But unlike past, the subsidy bill is unlikely to overshoot the budgeted amount due to fall in oil rates.
Oil subsidy account for a quarter of Rs 2.51 lakh crore. Originally, petrol and diesel prices were deregulated in April 2002 when the NDA government was in power. Administered pricing regime, however, made a back-door entry towards the end of NDA regime in the first quarter of 2004 when crude prices started inching up.
The Congress-led UPA had in-principle decided to deregulate diesel, which is used in everything from cars and trucks to back-up power generators and agricultural water pumps. The fuel accounts for 43 per cent of the nation’s fuel consumption.
Thus, from now on, any sharp rise in global prices of this fuel would lead to corresponding inflation in the country through an across-the-board rise in transport costs.
In fact, as a result of the move, the price of diesel was lowered by Rs 3.37 per litre with effect from the intervening midnight of Saturday-Sunday. This is the first reduction in diesel rates in over five years. Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86. Diesel prices were last raised by 50 paisa on September 1 and cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013.
There couldn’t have been more opportune time for the decision. Oil prices are near a four-year low and two major state elections are out of the way. Brent crude has fallen 25 per cent this year to around $83 per barrel and expectation is that it may not cross USD 100 barrel anytime soon.
The process was set in motion by the previous UPA government when it eliminated controls on petrol prices in 2010 and in January last year decided to raise diesel prices by up to 50 paisa a litre every month. The result has been that petrol prices have moved in tandem with global cost and retail rates being reduced on five occasions since August on falling oil rates. Prices have cumulative come down by close to Rs 7 per litre in last two-and-half months.
On diesel, the entire under-recovery or loss has been eliminated and oil firms started making profit from second half of September. The over-recovery or profit has since reached Rs 3.56 per litre. Deregulation would mean that the government and state-owned explorers including Oil and Natural Gas Corporation (ONGC) and Oil India Ltd are no longer subsidising diesel.
Finance Minister Arun Jaitley had budgeted Rs 63,400 crore for petroleum subsidies which was 25 per cent lower than previous fiscal. But unlike past, the subsidy bill is unlikely to overshoot the budgeted amount due to fall in oil rates.
Oil subsidy account for a quarter of Rs 2.51 lakh crore. Originally, petrol and diesel prices were deregulated in April 2002 when the NDA government was in power. Administered pricing regime, however, made a back-door entry towards the end of NDA regime in the first quarter of 2004 when crude prices started inching up.
The Congress-led UPA had in-principle decided to deregulate diesel, which is used in everything from cars and trucks to back-up power generators and agricultural water pumps. The fuel accounts for 43 per cent of the nation’s fuel consumption.
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