Chanakya IAS Academy Blog


Petrol, diesel prices to change daily from May 1

Petrol, diesel prices to change daily from May 1

From May 1 petrol and diesel price will change every day. Thus, our retail rates will be in synchronization with global rates.

This practice is followed in most of the advanced markets.

A pilot scheme will be launched in five selected cities from May 1 by the state-owned retailers. Under the pilot scheme, instead of using fortnightly average, rates will be revised daily. The scheme will be gradually extended all over the country.

Launching a pilot scheme first:

  • To study all possible implications of the change
  • Volatility in the global markets due to current geopolitical developments could get reflected in domestic retail prices too.
  • Consumer response to the new pricing mechanism also needs to be analyzed

The Current practice:

  • Currently state fuel retailers revise rates on 1st and 16th of every month
  • Rates are calculated based on the average international price in the preceding fortnight and the currency exchange rate
  • Under the proposed change, pump rates will reflect daily movement in international oil prices and fluctuations in dollar- rupee exchange rate

What the change aims to achieve:

  • The practice of daily rate change will remove the necessity to make significant changes in rates at the end of a fortnight
  • It will also ensure that consumers are more aligned to changing market dynamics

Implications of deregulation of fuel prices:

  • Has impacted inflation as diesel is important for the agricultural sector and the transportation industry and thus has a direct bearing on fuel prices
  • Subsidy bill of the government has come down as it no longer has to reimburse oil companies
  • Reduced subsidy burden has lowered fiscal deficit and government can deploy assets for more productive purposes
  • Deregulation has generated incentives for private sector firms and they have entered into fuel retailing
  • Upstream oil companies which include GAIL, ONGC have to contribute towards subsidies earlier. Deregulation of fuel means their subsidy burden will come down and profitability will increase.
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