Diesel Deregulated!!! Its impact….

Last Saturday, 18th October 2014 the government deregulated diesel prices. This means, the government will no longer decide the selling price of diesel in the country. The oil retailers such as Indian Oil Corp, BPCL and HPCL will take this decision.

Lets understand its impact on us as consumers and the Indian Economy –

  • Diesel prices will now be market – linked which means if the global prices rise we will have to pay more and vice versa.
  • This cut in diesel price will lead to a further cool off in inflation since diesel is the most used fuel in the agriculture sector and goods transportation industry. Lower inflation will lead to higher purchasing capacity for us as consumers.
  • The RBI Governor shall initiate bank rate cuts since inflation would be tamed. This will further boost demand in our economy.
  • The subsidy bill will come down as now the Government would no longer have to reimburse oil companies for selling Diesel below the market price. Kindly note – that the government paid Rs 85000 crore last year.
  • Because of this step taken, the Government may be able to meet its fiscal deficit of 4.1% of GDP which will be a big booster for the Indian Economy. In turn this lower fiscal deficit will reduce government borrowings and increase spending on asset creation. This will add to economic productivity.
  • As mentioned in my earlier blog, falling crude prices will lead to a reduction in import bill which will have a big positive impact on the Rupee.
  • The profitability of the OMC’s like IOC, BPCL and HPCL will go up. Similarly ONGC will be a major beneficiary.
  • Private companies such as Reliance Industries and Essar Oil will be able to compete with the companies like IOC, BPCL and HPCL. These companies will also benefit in the long run as sales will increase.

— Kiran Jadhav – CMD.

Precision Investment Services.

kiran@pis.net.in

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