Indian panel suggests options for diesel pricing

The Prime Minister’s Office (PMO) of India has been monitoring developments in the oil industry in an effort to introduce reforms that would reduce the fuel subsidy burden and bridge the deficit gap. Following the resignation of Finance Minister Pranab Mukherjee, another economist, PM Manmohan Singh, took charge of the ministry. Fuel pricing reforms are expected after the presidential elections on July 19. In the current fiscal year, the country’s oil and upstream companies and the government shared the burden of Rs1.38 trillion (US$24.88 billion) in revenue loss accrued for selling fuel below market rates. Revenue losses this year are projected to reach Rs1.6 trillion (US$28.86 billion), but the recent decline in oil prices may decrease that amount. An official panel currently working on India’s “Policy Options for Diesel Pricing” has offered the following suggestions:

• Increase in fortnight/month should be restricted to Rs1.
• The government should announce an upfront subsidy for diesel per liter, which will be applicable for specific levels of global crude/diesel prices.
• Announcements should be made about the maximum retail price for diesel at the depots for particular levels of global crude/diesel prices
• That the “per liter” subsidy should be made available to all oil marketing companies; the government could consider giving subsidy to private oil companies upon delivery of the product to PSU oil retailers.
• No customs or excise duties on diesel.
• The ratio of import parity and export parity could be changed to 60:40 from the current 80:40.
• Giving incentives for the use of other fuels by bulk users, such as the Railways and Defense.

(June 28, 2012)