Deregulation of diesel expected to complete by May 2014

Friday 22 November 2013, 11:56 AM by

A lot of controversy and hype has been going around the country regarding the pricing of fuels. Not only have rising fuel prices angered masses, they have also had a direct impact on performance of a few sectors, including and especially that of automobiles. M Veerappa Molly, Oil Minister, recently said in a media interaction that given how things are going right now, prices of diesel could be fully deregulated in another six months, which, if calculated, comes down to May. Also, it is being said that the government is likely to continue with its current policy of hiking diesel prices by 50 paise per month. If facts and figures are to be put into perspective then by May, diesel would be costlier by around Rs. 10 – Rs. 12.

There are several underlying mechanisms to this entire phenomenon, such as international crude oil prices, value of the rupee and control in the hand of state-owned retailers. Reports suggest that the Government of India is expecting the value of rupee to increase in comparison to the dollar along with a simultaneous fall in international prices of crude oil. “We are already going in that direction. If the rupee appreciates and international oil prices drop, we will be in a position to completely deregulate,” Moily was quoted as saying.

In recent times, there has been a lot of talk going on regarding one time increase in the price per litre of diesel followed by hikes at regular intervals. In fact, the government had set-up a committee that would understand things from all perspectives and do what is in the benefit of the industry in general. As a result of its analysis, the panel, according to reports, recommended an instant hike of Rs. 5 and subsequently, regular increase till the neutralisation of the subsidy takes place. However, keeping the upcoming elections in mind, no such implications were made by the government, which is quite understandable. Interestingly, there is an election perspective to this entire story as the government is in a tricky situation. Rise in prices of diesel is set to take a toll on farmers, who use diesel for tractors and from the government’s point of view, form a major chunk of voters.

Apart from this, the automobile industry is also deeply influenced by the prices of fuels. Diesel cars are highly in demand in the country as petrol is already quite expensive. Now, a direct consequence of an increase in the rise of diesel prices would make customers highly reluctant. In the recent past, things have not been looking good for car makers as far as demand and sales are concerned. Despite the festive season, most companies have not been able to register good sales figures. A major reason for this has been the rise of fuel prices and interest rates in the country. Industry experts feel that once full deregulation of prices is done, car companies can finally look forward to stable and better times.

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