The government today has allowed oil marketing companies to hike diesel prices. Companies are now allowed to make a monthly increase of 50 paisa per litter. The move effectively is abolition of the administered price system in diesel. In the near future, companies will set the price of diesel. But more clarification is needed from the government on this regard.
This is the first time in many decades that the government has allowed oil companies to set diesel prices. The move is a historic one as it indicates that in future diesel price may be increased to wipe out the subsidy. Or in other words, diesel prices are completely deregulated and will be market determined once it is set near the non-subsidized rate and companies are allowed to change the price. It is estimated that price of diesel is lesser by around Rs 10 as per today’s levels.
The decision on is to downsize the subsidy bill of the government. As per the trends, the coming budget may register big shortfall in revenues of the government. Thus, expenditure compression in the form of subsidy reduction is necessary for the government to stand straight. The Finance Minister in the meeting of the state finance ministers has indicated tough measures to keep fiscal deficit at the targeted level.