<div>It was an NDA government that had first proposed the deregulation of diesel and petrol prices in 2002. However, it took 12 years and another NDA government to make this finally happen in case of diesel.<br /><br />Aided by the weakening international crude oil prices (it touched a 4-year low of $83 per barrel), the de-control not only relieves the government of the burden of high fuel subsidy but also creates a level playing field for the private fuel retailing sector vis-a-vis the government-owned marketing companies.<br /><br />Interestingly, the government had de-regulated the petrol price in June 2010. However, the decision did not lead to any kind of competition in the market because of the monopoly of state-owned oil marketing companies which operate in tandem with each other and announce prices hikes on the same day and at the same level. This has robbed consumers of competitive pricing by the retailers. So far, because of the high subsidy provided by the central government to the three government owned oil marketing companies (IOC, BPCL and HPCL), the private sector companies were not able to sell diesel at their shops, making them insignificant players in the business.<br /><br />But now, the private sector companies like Essar, Shell India and Reliance have announced their plans to start selling diesel from their outlets. The companies will have to offer competitive pricing to compete with the widely spread network of the government owned OMCs. Country’s largest fuel retailer Indian Oil Corporation (IOC) operates 23,993 outlets in the country, while BPCL has around 12,500 outlets across the country. On the other hand, Essar has just 1,400 outlets.<br /><br />I</div><table cellspacing="1" cellpadding="1" width="300" border="1" align="right"><tbody><tr><td style="text-align: center;"><a href="http://www.businessworld.in/news/business/energy-and-power/diesel-decontrol-who-gains-&-who-loses/1584449/page-1.html"><span style="font-size: large;"><span style="color: rgb(255, 0, 0);"><strong>Who Gains & Who Loses</strong></span></span></a></td></tr><tr><td><div><img width="300" vspace="1" hspace="1" height="300" align="middle" src="/image/image_gallery?uuid=7325c10c-21b8-4ef8-9147-599626c0ee66&groupId=36166&t=1413808540498" alt="" /></div><div> </div><div><span style="color: rgb(102, 102, 153);"><strong>Oil prices are in a free fall. They have fallen 15 per cent over the last quarter. This is great news for India. India imports 70 per cent of its oil requirements. India imported 185 million tones of crude oil in 2013-14<br /><br /><a href="http://www.businessworld.in/news/business/energy-and-power/diesel-decontrol-who-gains-&-who-loses/1584449/page-1.html">More</a><br /><br /></strong></span></div></td></tr></tbody></table><div>OC, which was anticipating the diesel price de-regulation, has already started to upgrade itself to compete with the private sector. It has brought around 6,077 of its outlets under automation. The de-control also brings in new players who will be hard-pressed to offer competitive pricing and lure the customers will other frills like cleaning up of car windshields, cheap pollution check up among others.<br /><br />However, the government will have to make sure that once the private sector makes investment in the business, there is no looking back.<br /><br />A pertinent question at this time of diesel price de-regulation euphoria is, will the government be able to stick to its decision of decontrol even if international crude prices were to spike again in the coming years? Analysts have projected that the oil prices in the international market will only go down in the coming years. According to a Crisil report, over the next five years the global oil demand is likely to increase by 4-4.5 million barrels per day, whereas crude oil supply is expected to increase by 8-10 mbpd. This, will lead to further fall in the price of crude oil.<br /><br />So far so good, but what if the analyst projections go wrong, as has been the case in the past? Will the government stick to its decision even if oil prices were to reach above $110 per barrel. The Geo-political reasons can turn the tide in the opposite direction anytime.<br /><br />“India will have to be watchful of global developments. Crude prices and therefore petroleum product prices are currently low because of low demand and appreciation of the US dollar in relation to its trading partners (measured by US Dollar index). In a scenario where even if global oil and petroleum products demand and supply remain same, depreciation of the US dollar may flare up both crude and product prices,” a report by Fitch India ratings said.<br /><br />The government is silent on the matter and the analysts have expressed their concern on the same.<br /><br />“Sunil Kumar Sinha, Principal Economist with Fitch India Ratings said that “the government should have been clear on the issue, because even though it looks highly unlikely that the crude oil prices will flare up in the near future, but it is important for the government to be clear on its future stance. The government allows the diesel prices to move in tandem with the market so that the consumers do not get a onetime shock”.<br /><br />Whatever be the future situation, the government will have to make sure that it does not backtrack from its decision to de-regulate the fuel pricing to ensure competition in the market and lower subsidy burden on the exchequer.</div>
