The difference between sale price of diesel and its market (non-subsidised) price fell to a historic low of 0.08 paisa/litre on Monday after a 50 paise hike in its price. With this, the deregulation of the fuel appears to be an eventual formality.
The development marks the culmination of the policy of monthly price increases for the fuel that had begun in January 2013, when the PSU oil marketers' under-recovery on the fuel stood at above R10/litre.
Even as the under-recovery on diesel is now nearly wiped out, the government is yet to take a decision on whether to announce the deregulation of the fuel's price (last Saturday, addressing a press conference here, finance minister Arun Jaitley hinted that once diesel price becomes market-determined, it could remain so). Petrol price was deregulated in June 2010.
Domestic diesel price could come on a par with international rates as early as next week if crude oil price continues to soften and the rupee doesn't weaken significantly against the dollar.
Brent crude hovered around $103/barrel on Monday. So there may not even be a need to effect another 50 paisa/litre due on October 1 as scheduled.
There is lack of clarity on whether the government will completely deregulate the prices by authorising the oil-marketing companies (OMCs) to revise the prices of diesel with market conditions or the retail price increase would be capped at 50 paisa per litre per month even if there is sudden increase in crude oil price or depreciation in rupee (against the dollar) demanding steeper price hike, said ICRA.
The petroleum ministry is believed to have prepared a note to be taken up by the Cabinet Committee on Political Affairs (CCPA) proposing freeing diesel price. However, it is not immediately know whether CCPA is considering to take up the matter shortly.
The price of domestic diesel is linked to international price of the commodity as well as the rupee-dollar fluctuations. For example, the monthly increases had trimmed losses to less than R3 per litre in May last year before a fall in rupee value led to losses on diesel sale widening to R14.50 per litre in September 2013.
Losses on diesel stood at R8.37 per litre in March before BJP government tool charge. When Modi government came to power in May, losses on diesel sales stood at R4.41 a litre. They fell to R1.62 a litre in the second half