Saturday, October 18, 2014

Govt. deregulates diesel, price cut by Rs 3.37 a litre

Flash : In a much-awaited reform move, the central government on Saturday deregulated diesel prices, a move that will result in a price cut of Rs. 3.37 a litre with effect from midnight. Finance minister Arun Jaitely said the Cabinet in its meeting on Saturday decided to deregulate or free diesel prices. Retail rates will now reflect international movement in oil prices.

As a result, rates will be cut by Rs. 3.37 a litre with effect from midnight tonight (Saturday).
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.
    
Reserve Bank Governor Raghuram Rajan has recently called on the government to "seize this moment", while inflation is the lowest in five years and refiners are selling at a profit for the first time ever.
    
Brent crude has fallen 25% this year to around $83 per barrel and expectation is that it may not cross $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 toRs. 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 Corp (ONGC) are no longer subsidising diesel.
    
Jaitley had budgeted Rs. 63,400 crore for petroleum subsidies which was 25% 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 controlled rates as international oil prices went through the roof. In June 2010, however, it freed petrol price from its control and rates have since then moved more or less in tandem with cost.
    
It 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% of the nation's fuel consumption.
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