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The crude logic of regulated deregulation
Diesel and petrol are deregulated, but their pricing is still more or less managed. For how long?
The government freed prices of aviation turbine fuel (ATF) in 2002, petrol in 2010 and diesel in October 2014. Although refiners were given pricing freedom on paper, what this meant in government-speak was that prices of these fuels would be recalibrated periodically to market prices, the key benchmark for which is the price of their raw material—crude oil.
Fuel prices trail crude
In 2014, prices of India’s crude oil basket tumbled 45%, from $105 per barrel to $58. But the only fuel whose price has declined proportionately is the non-subsidized cooking gas. For three other fuels—ATF, petrol and diesel—the fall in price has been significantly less: notably, 14% in petrol (a deregulated fuel in this period) and 7% in diesel (a regulated fuel for most of this period).
Duties over pricing freedom
For petrol and diesel, the government has hiked excise duty thrice since 13 November. And the oil marketing companies—all of them—chose not to absorb this and instead passed it on to the consumer. Even if they had absorbed the duty hike, the differential in the volume of the fall would still be significant.
Diesel is marked to market
It appears the government is keeping some cushion for itself to manage a transition, in this roundabout way, of India’s oil sector from ‘regulated deregulation’ to full and true deregulation. Diesel is the latest fuel to be finally primed for true deregulation, leaving kerosene and subsidized LPG as the only fuels in the subsidy basket.
Refinery stocks beat the market
The market appears to be expecting a move to full deregulation. With diesel prices in India finally pegged to their true cost of production, stocks of state oil refiners have outperformed the market in the past year.
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First Published:5 Jan 2015, 12:07 AM IST
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