Diesel Price Likely to be Cut After 5 Years

Diesel price is likely to be cut by about Re 1 per litre, the first reduction in rates in over five years, while petrol price may be slashed by Rs 1.75. Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86.

State-owned oil firms are likely to announce reduction in rates, made possible because of softening in international oil rates, this evening, government and industry sources said.

Under-recovery or the difference between retail price and its imported cost was wiped out and there was an over-recovery of 35 paise a litre from September 16. This over-recovery is now about Re 1 a litre.

While the government had resisted the temptation to cut rates then, prices are likely to be reduced at the fortnightly review due today.

Sources said oil ministry is of the view that while the Cabinet Committee on Political Affairs (CCPA) had on January 17, 2013 allowed a monthly increase in diesel price of 40-50 paise per month to wipe out the under-recovery, it wasn't envisaged that there would be over-recovery.

It wants to reduce diesel price to protect state-owned oil companies' market share, which may be lost to private retailers who would be selling diesel in tandem with international prices.

Oil Minister Dharmendra Pradhan is believed to have already written to Prime Minister Narendra Modi on the emerging scenario. Also, it has written to the Election Commission seeking their concurrence for the price decrease in view of state assembly elections in Maharashtra and Haryana.

Since the reduction in diesel price in 2009, rates have only increased as international oil prices climbed. Since January 2013, diesel prices have been raised by up to 50 paise a litre every month to eliminate under-recoveries.

Like diesel, state-owned oil companies had also not changed petrol rates on September 16 though it warranted a 54 paise increase as its benchmark gasoline rates had firmed up in international market.

This is perhaps the first time that retail prices in India are higher than global rates.

Oil companies calculate the desired retail selling price of petrol and diesel on 1st and 16th of every month based on average international benchmark price and rupee-dollar exchange rate.

The next revision in diesel and petrol prices is due today.

Originally, petrol and diesel prices were deregulated in April 2002 when the NDA (National Democratic Alliance) government was in power. Administered pricing regime, however, made a back-door entry towards the end of NDA regime in the first quarter of 2004 when crude prices started inching up.

Congress-led UPA (United Progressive Alliance) controlled rates as international oil prices went through the roof. In June 2010, however, it freed petrol price from its control and rates have since them moved more or less in tandem with cost.

In January 2013, the UPA decided to deregulate diesel prices in stages through monthly 50 paise a litre increases.

Rates were last raised on August 31 after which losses have been wiped out.

Rates have cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013.