Diesel price decontrol may only be partial, unlike in the case of free pricing of petrol, as the government may continue to provide a fixed subsidy of Rs 1.49 per litre irrespective of the rise or fall in its market-linked retail price.
The government freed up prices of petrol and diesel on June 25, but capped the increase in the case of diesel to Rs 2 per litre against a required hike of Rs 3.49 a litre.
There is no clarity within the government about the balance Rs 1.49-a-litre hike needed to lift diesel to market rates.
“What this means is that on diesel we will give a (virtually) fixed per-litre subsidy of Rs 1.49,” a finance ministry note circulated to top decisionmakers in the country said.
Irrespective of variations in the pump price of diesel, the note says, consumers will continue to get the Rs 1.49-a-litre subsidy cushion.
In its June 25 decision, an empowered group of ministers headed by finance minister Pranab Mukherjee fully deregulated petrol and diesel prices. While the price of petrol immediately rose to what it would cost in a free market — by Rs 3.5 a litre in Delhi — in the case of diesel the EGoM pegged the increase at Rs 2 a litre, Rs 1.49 per litre short of what the free market price would have been.
While the assumption was that diesel prices would gradually rise to a free-market price, the government does not seem to be so clear.
“There is no clarity who will bear this burden (shortfall of Rs 1.49 a litre),” a senior executive of a public sector oil marketing company said.
The note pointed at the ambiguity in the EGoM decision.
“I stressed this (fixed subsidy on diesel) at the EGoM and there was some discussion on it. But in various statements coming out subsequently this got muffled. So observers are not clear if diesel has been decontrolled or not,” a senior official said in the note.
The oil ministry seems to think the EGoM freed pricing of both petrol and diesel. “The EGoM has deregulated both petrol and diesel prices on June 25 and it has not proposed any fixed subsidy on it,” an official in the ministry said.
But he could not say why the government restricted retail price increase in diesel to only Rs 2 a litre while the then market price would have required an increase of Rs 3.49 a litre.
The government’s statement issued on June 25 did say that “the pricing of petrol and diesel both at the refinery gate and the retail level will be market-determined”.
But it was vague on moving towards a market-determined diesel price. “... in respect of diesel, the initial increase in retail selling price of diesel will be Rs 2 per litre ... Further increases will be made by the public sector oil marketing companies in consultation with the ministry of petroleum & natural gas,” it had said.
Source: Economic Times
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