Clear roadmap for diesel price deregulation expected in budget

Hindustan Times, June 30, 2014

The forthcoming budget is likely to spell out details of diesel price deregulation, a move that will help the government cap its mounting subsidy bill while ensuring competition in fuel retailing sector. Chipping away subsidies is one of the top priorities of the Narendra Modi-led government, with fuel subsidies, estimated at Rs. 1.4 lakh crore for 2014-15, likely to cast a direct impact on the country?s financial health besides disturbing fiscal deficit targets, a senior government official said.

The BJP had in its election manifesto promised to revive the economy and expedite foreign investments.

Finance minister Arun Jaitley is expected to unveil details to abolish subsidies on auto fuels in the Union Budget 2014-15 scheduled to be presented on July 10, officials said.
Significantly, the deregulation of diesel prices is unlikely to cast any immediate impact on the consumer prices of the fuel as plans are also afoot to simultaneous cut the excise duty on diesel by Rs. 1-2 a litre.

At present, losses on diesel are at an all-time low. Post the implementation of the 50 paise monthly hike expected on June 30, the losses of state oil firms on the fuel may come down to Rs. 1.50 a litre, which too will get completely wiped off after the excise duty cut.
Freeing of diesel prices will also see the entry of private sector companies including Reliance, BP, Shell and others into fuel retailing, thereby putting pressure on their public sector counterparts to reduce prices and benefitting customers.

In addition, the finance ministry is also understood to have laid out a roadmap for a phased reduction of subsidy on kitchen fuels ? LPG (cooking gas) and kerosene, details of which are also likely to be spelled out as part of the budget proposals.

Either a monthly hike in the prices of these two cooking fuels may be announced or the cap of 12 subsidised LPG cylinders could also be reduced to nine in a year.

Plans are also afoot to reduce the fuel subsidy outgo to onethird on kerosene and by half on LPG by 2015-16, sources said.

?In line with the Kelkar Committee report, the government needs to bring down the subsidy bill at the earliest to get back on the fiscal track. Reviewing fuel subsidy is the government?s prime objective because other subsidies ? for fertilisers and food ? will be untouched,? a senior ministry official said.

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