Petrol, bulk diesel get cheaper: What it means

There is some good news on the fuel pricing front. Oil marketing companies (OMCs) have reduced petrol prices roughly by one rupee per litre from Thursday midnight. Non-subsidised diesel - sold to customers with bulk requirements - has turned cheaper by 72 paise per litre.

The railways, state transport companies, industrial houses, power and manufacturing companies are major users of diesel.

Softening of fuel prices would mean that railway fares - likely to be announced by September - might come down. This will impact inflation and can give respite to the government, which is being criticised for not controlling rising prices.

Following the policy of correcting the price of diesel at retail outlets every month, prices of this fuel will be higher by 50 paise. At current international prices of diesel, the under-recovery on this fuel is expected to come down to Rs 1.33 per litre. Prices of non-subsidised cooking gas cylinders have been corrected by Rs 2.5 per cylinder.

This means the Narendra Modi government can save on subsidies, as the OMCs would be losing Rs 50 crore less per day. This correction was made possible because of a stable currency and falling prices of fuel in the international market. The average rate of dollar in the last fortnight remained at Rs 59.94.

The previous UPA government in January 2012 had decided to increase diesel prices by 50 paise every month until the under-recoveries were wiped out. Officials in the petroleum ministry say that, if the situation persists, by Diwali the prices of diesel will be market linked.  

The last government freed the prices of petrol in June 2010, and allowed the OMCs to correct the prices every fortnight. However, informal interventions of the government persist in pricing.

Petroleum Minister Dharmendra Pradhan is trying to convince state governments to reduce taxes on these fuels. He has sought a meeting with 12 states with the highest tax, which in many states goes up to Rs 7-9 per litre. The meeting with the finance ministers of these states has been fixed for the first week of August. Ministers from Assam, Bihar, Haryana, Karnataka, Uttarakhand and Kerala are likely to meet Pradhan along with representatives of the finance ministry in the first batch. It will be followed by ministers from Maharashtra, Madhya Pradesh, Rajasthan, Tamil Nadu, West Bengal and Uttar Pradesh.