Deregulate Diesel Prices At The Earliest: Rajan

MUMBAI: The government must take advantage of the lowest oil prices in a year to deregulate diesel, the RBI Governor Raghuram Rajan said. Brent crude, a benchmark for Asian and Indian buyers, has fallen 14 percent since June to $96.38 per barrel. This together with monthly price increases of up to 50 paisa a litre has trimmed losses on the nation’s most consumed fuel to just 8 paisa per litre.

“Lower crude oil prices are helping consuming countries like us. Typically a lower oil price means a lower CAD, lower oil subsidies and lower inflation. We need to seize this moment to eliminate diesel subsidies completely. We should take this moment to eliminate diesel subsidies as soon as possible,” Dr. Rajan told a banking summit in Mumbai.

The next revision in diesel prices is due this month-end and going by the present trend the under-recovery or the difference between the imported cost and the retailing selling price, will be wiped out with a minimal hike.

Even after the under-recovery is wiped out, the Cabinet has to approve de-regulation or freeing of diesel prices. This will empower the oil companies to change rates in tandem with cost like they do in case of petrol since June 2012. “We can of course wait but the moment will leave us and we may be back to subsidising,” he said

The NDA government has continued with the previous UPA regime’s policy of raising diesel rates by up to 50 paise a litre every month to bridge the gap between cost and retail prices. Originally, petrol and diesel prices were deregulated in April 2002 when NDA government was in power. Administered pricing regime, however, made a back-door entry towards the end of NDA regime in the first quarter of 2004 when crude prices started inching up.

The Congress-led UPA controlled rates as international oil prices went through the roof. In June 2010, however, it freed petrol price from its control and rates have since them moved more or less in tandem with cost. In January 2013, the UPA decided to deregulate diesel prices in stages through monthly 50 paise a litre increases.

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