Govt to tread cautiously on deregulating diesel prices

With the fall in global crude prices, diesel rates may see a temporary cut but the government may not act in haste on its deregulation.

Freeing diesel prices may hurt the agricultural sector and trigger a sudden price rise in essential commodities in case crude spikes up sharply. The monthly rise of 50 paise per litre on diesel will be halted as it makes no sense now, an official in the oil ministry said but gave no indication on de-regulation.

The ministry of petroleum has not yet moved any Cabinet note on diesel price deregulation, he said. Oil marketing companies have been raising retail price of diesel by 50 paise every month since February 2013 when the then UPA government allowed them to do so until the fuel price was at parity with international prices.

The subsidy losses on the fuel fell to just 8 paise a litre for the first fortnight of September. This is expected to come down further with global crude prices treading a little above $98/barrel. The government has two options. Either pass on the price cut to consumers or leave it as a buffer with oil companies so as to provide a cushion when there is a sudden jump in crude oil prices.

The price review is due on September 15. “We intend to pass this on to the consumer,” said an executive of an oil marketing company. If that happens, it will be the first cut in diesel prices in the past seven years. Oil ministry sources say, the government may give some relief but the prices will certainly not be linked to the market rates.