October 2014 saw the BJP led NDA government announcing the deregulation of diesel prices. Many expect this move would to an extent, enable oil marketing companies start selling fuel at their own prices rather than sticking to the government decided prices that incur huge losses. However, the sale of domestic fuels such as LPG and kerosene by OMCs would not experience any change with this announcement.
If the government were to provide these OMCs the freedom to set automotive fuel prices above the cost, it would ensure a breather for the former as well as the investors who have been for quite some time now, worried about the malicious impacts pertaining to high under-recoveries.
However, the government’s move to deregulate fuel prices doesn’t look all too clear and clean. For instance, its decision to increase the excise duty pertaining to diesel and petrol twice within 15 days as well as the OMC’s stance to not pass on this hike to the consumer speaks a lot about the lack of freedom in the move.
With dropping oil prices, OMCs had for the first time in years, started making profits on selling petrol and diesel. The government’s decision to increase excise duty hikes simply stripped these OMCs of their profits.
While some consider this to be a smart economic as well as political move by the Indian government, it doesn’t paint a pretty picture when it comes to the spirit of reform the former has been proposing for quite some time now. While it talked about its commitment to deregulate prices, the government has only violated the spirit of the reform itself.
Since most of the OMCs are state owned, one can say that this decision is purely a political pressure rather than a commercial interest. The government cannot say deregulation has happened if it forces the OMCs to sell fuel according to the prices set by the political bigwigs.
That the government is still controlling the fuel prices is evident from the way major fuel retailers like HPCL, IOC and BPCL have similar price tags for the fuel that they sell. Deregulation would allow for some significant changes in the prices between different companies, at least on a state level basis. Unless the government takes measures to allow proper deregulation, one can only expect OMCs to follow the same pricing policies and act as if they follow free pricing instead.
Summary
The Indian government has announced the deregulation of the prices of diesel. However, its stance on the issue is considered as a mere act as oil companies in the country continue to sell fuel at similar prices. As such, deregulating fuel prices is still a move India can only dream of for now.
