Diesel prices have been finally deregulated in India. A major price cut of Rs. 3.37/- has been witnessed in Delhi and citizens can heave a sigh of relief.
When petrol prices started rising drastically and diesel was still cheap, we saw people jumping over to buy diesel cars. While some of them had a real high daily usage, others bought diesel cars just for the day-to-day cost benefit and conveniently forgetting the much higher premium that diesel cars asked for. The Narendra Modi government, which recently came into power has now deregulated the prices of diesel following a reduction in international crude prices. So from now on, diesel prices will be directly linked to current crude prices.
Over the last 19 months, i.e. starting from January 2013, diesel prices were increased by Rs. 0.50 every month and the total hike has been Rs. 11.81/-. This is the first ever price cut that diesel is seeing in the last five years. It has come at the right time since for the first time ever diesel sales were bringing in profits for six consecutive weeks. Raghuram Rajan, Governor, Reserve Bank of India had also advised the government to deregulate diesel prices at this moment.
There are many private firms like Reliance Petroleum and Essar Oil which are not allowed to sell fuels at discounted rates and hence they have always sold via state refiners in spite of having their own infrastructure. This deregulation will allow them to step into retail too. This price cut has come off as a major relief for users of diesel vehicles, both private as well as commercial. While most of the citizens may not understand the economics thinking that goes behind taking such decisions, the Modi government is surely going to get a lot of goodwill for this move which was initiated by the previous government. The fiscal deficit will see a reduction as the government will no longer be paying for diesel fuel subsidy, so everybody wins.