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.