M A I N   N E W S

Diesel decontrolled, cheaper by Rs 3.37
* Govt okays new gas price formula
* To re-launch direct benefit transfer for LPG subsidy
Sanjeev Sharma
Tribune News Service

New Delhi, October 18
much-awaited reform on energy pricing and cutting subsidies, the Narendra Modi government today decided to deregulate or link to market the price of diesel. As a result, the diesel price has been slashed by Rs 3.37 with effect from midnight.

In a pre-Diwali bonanza, the government also announced other reforms related to the petroleum sector, including transferring the subsidy on LPG cylinder directly into consumers' bank accounts from November 10 through the Direct Benefit Transfer (DBT) scheme, besides settling the natural gas pricing at $ 5.61 per unit. This will be revised on a half yearly basis.

The LPG subsidy linked to bank accounts will also reduce subsidy. The gas pricing has been reduced from $ 8.4 per unit decided by the Rangarajan Committee for the ONGC and RIL. This will incentivise domestic production of gas and raise input cost for power and fertilizer industries.

This is the first reduction in diesel rates in over five years. Diesel rates were last cut on January 29, 2009, when they were reduced by Rs 2 a litre to Rs 30.86.

Finance Minister Arun Jaitley said the Cabinet decided to completely deregulate the diesel prices and henceforth the price will be linked to the market.

"Over the past five years, diesel prices have significantly gone up. But given the crude oil price today, diesel rates will to be reduced after being linked to the market," he said.

Reserve Bank of India Governor Raghuram Rajan had recently called on the government to deregulate diesel prices as inflation was lowest in five years and refiners were selling it at a profit for the first time.

Like petrol, diesel prices will also move in tandem with the market. With crude prices hitting a four-year low and Indian basket at $ 83 a barrel, the timing could not have been better for the government to go ahead with the bold reform.

Diesel prices had been hiked by 50 paisa every month for the past several months, which resulted in an under-recovery of almost Rs 10 a litre becoming an over-recovery of Rs 3.56 a litre helped by a fall in crude oil prices.

Diesel prices were last raised by 50 paisa on September 1 and cumulatively raised by Rs 11.81 per litre in 19 instalments since January 2013.

Petrol and diesel prices were deregulated in April 2002 when the NDA government was in power. Administered pricing regime, however, made a back-door entry towards the end of the NDA regime in the first quarter of 2004 when crude prices started inching up. Deregulation of diesel will also see private sector players such as Reliance Industries and Essar revive their petrol pumps and retail plans as petrol and diesel are now market linked and the government does not have to pay subsidy.

LK Gupta, MD and CEO, Essar Oil, said diesel deregulation will also bring the private oil marketing companies' retail network into the system. This will increase competition and benefit the end consumer.

Finance Minister Arun Jaitley had budgeted Rs 63,400 crore for petroleum subsidies which was 25 per cent lower than the previous fiscal.

The Cabinet also approved new gas price formula to be applicable from November 1. Gas prices will be revised on half yearly basis, on April 1 and October 1 every year, and will be will be implemented prospectively.

To be linked to market

• This is first reduction in diesel rates in over five years
• Rates were last cut on January 29, 2009, when they were reduced by Rs 2 a litre to Rs 30.86
• Like petrol, diesel prices will also move in tandem with the market
• LPG prices will be revised on half yearly basis, on April 1 and October 1, every year