Sunday, February 3, 2013

After having slept over the subsidy problem for too long, the government seems to have hit the accelerator on diesel pricing. As per the Oil Minister, diesel prices will be hiked by 40 to 50 paise per litre every month. This is until the gargantuan losses on the nation's most used fuel are completely wiped out. The government's directive earlier this month aimed at deregulating diesel prices was meant to offer some breather to loss making PSU oil firms. The fuel is currently sold at a loss of over Rs 10.80 per litre. Hence bulk consumers like defence, railways and state transport undertakings would have to bear the market price. This again is dearer by almost Rs 10 a litre as compared to retail selling rate. For one we believe that this reform measure was much called for and is well timed. The under recovery burden for FY12 itself was around Rs 1.2 trillion, up 55% on a year on year basis (YoY). However, the step to deregulate the fuel price at the user level should be simultaneously balanced by rationalising taxes and duties on diesel. Only then will the prices reflect actual supply and demand dynamics of the market without compromising the viability of the business.