Losses from sale of diesel slide, hopes high on fuel deregulation

The gap between administered price and market rate of diesel has narrowed to Rs 1.62 per litre, raising hopes of deregulation of the fuel and leaving the government with the burden of having to pay subsidies on only LPG cylinders and kerosene.

An official statement on Monday said that the difference between cost of diesel production and the retail selling price has narrowed to Rs 1.62 a litre from Rs 2.80 in the first fortnight of June.

Diesel is the most consumed fuel in India yet subsidised by the government as most of it is used by the farm sector.

If the rupee continues to strengthen and monthly price hikes of up to 50 paisa per litre are allowed, diesel prices will be decontrolled by September, according to officials.

Diesel prices were last hiked on June 1. Rates have cumulatively risen Rs 10.12 a litre in 16 instalments since January 2013.

The government has already taken an in-principle decision to eliminate all subsidies on diesel. The subsidy on petrol was scrapped in June 2010.

But the government didn’t have the will to pull the trigger and implement the unpopular decision ahead of crucial general elections this year as that would have ignited resentment from allies.

A committee headed by Vijay Kelkar, former petroleum secretary and chairman of the 13th Finance Commission, which had been asked to outline a fiscal roadmap for fiscal consolidation, had suggested in its September 2012 report that half of the diesel subsidy ought to be eliminated by March 31, 2013.

It added that the remainder could be scrapped by end-March 2014.

“Similarly, our policy goal should be to eliminate the LPG subsidy by 2014-15 by reducing it by 25 per cent this year (2012), with the remaining 75 per cent reduction over the next 2 years. For kerosene, the objective should be to reduce the subsidy by one-third by 2014-15,” the Kelkar committee had said.

“Losses on diesel have fallen rapidly since March as the prospect of a stable and decisive government under Narendra Modi helped rupee gain against dollar. Losses on diesel stood at Rs 8.37 per litre in March. Besides diesel, the oil firms are at present Rs 32.87 a litre on kerosene and Rs 432.71 on LPG, the statement said.

OMC under-recoveries for 2014-15 are projected to be Rs 91,665 crore as opposed to Rs 1,39,869 in the 2013-14.