Diesel price may come down for first time in 7 years
India is considering a cut in diesel prices for the first time in seven years amid global crude price dropping below $100 a barrel for the first time in more than a year.
That in turn could allow the central bank to ease up on its interest-rate stance at the next monetary policy announcement, boosting revival prospects.
This comes as the government has been considering freeing up diesel prices, since subsidy has been narrowed by incremental, monthly price increases.
“If this downward trend in international oil prices continues and the rupee appreciates even marginally, there will be over-recovery from this month,“ said a senior executive at an oil PSU who didn't want to be named.
“We intend to pass this to customers,“ said the executive. “ A price review is expected on September 15.But the decision regarding diesel price cut will be taken by the government because it is a regulated fuel."
The government is still evaluating the political situation in poll-bound states before deregulating the fuel, government and industry officials said.
Benchmark Brent crude fell on Monday to a 14-month low of $99.59 per barrel, dropping below $100 for the first time since June last year because of sluggish demand from major importers, particularly China. Meanwhile, the rupee has appreciated marginally against the dollar, which has almost aligned pump prices of diesel with market rates.
According to the oil retail industry, pump prices of diesel have not been cut in the last seven years except for a marginal reduction on July 25, 2012, because of changes in distribution costs.
Oil companies review petrol and diesel prices every fortnight. While petrol prices change on the 15th and 30th of every month, the government has been raising diesel prices by 50 paise every month since January last year. The previous UPA government had decided to raise diesel rates in small monthly doses until pump prices were aligned with market rates and it could be deregulated. According to oil companies, a petrol price cut is imminent for the fourth time in a row.
“No decision has been taken on diesel price deregulation. The oil ministry has not yet circulated the Cabinet note to this effect," a senior government official said on condition of anonymity. The oil ministry is keeping a close watch on fuel price movements and is ready to present a draft cabinet note at short notice, officials said.
The government is hesitant to free diesel prices just before assembly elections in four states Jammu & Kashmir, Maharashtra, Bihar and Jharkhand.
“International petrol and diesel rates are highly volatile. Political prospects of the ruling BJP will be hampered in case their rates jump during assembly elections," one official said. According to officials, a final decision on deregulation will be taken after consulting the finance ministry.
The diesel subsidy used to be a major drag on the exchequer, having accounted for about 45-50% of total fuel subsidies until January last year. The UPA government's move to make a monthly increase narrowed the diesel subsidy to an estimated Rs 19,584 crore in the current financial year from Rs 62,837 crore in 2013-14.
The expected move to free diesel prices from government control will also boost private investment in the fuel retail sector that was opened up in 2002.