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Get ready to pay market price for diesel by Sept

business Updated: May 02, 2013 02:48 IST

Come September, and you may pay end up paying the market price for diesel which is being slowly freed from state subsidies, helping the government rein in a high fiscal deficit.

With recent hikes in diesel prices on the one hand and a fall in global crude oil rates on the other, state-owned oil companies expect losses on diesel sales to be completely wiped off in the next six months, aligning them with the market. A stronger rupee is also aiding the trend. However, it is unlikely to stroke inflation and disturb household budgets since economists and experts say that the quantum of increase expected is miniscule.

Diesel currently costs Rs 48.67 per litre in Delhi.

"The global fall in crude oil prices…coupled with the monthly price hikes is expected to free diesel prices and make them market-linked in six months time," said a senior official.

Under-recoveries are losses incurred on the sale of fuel below market price.

"We are fortunate as imported crude oil prices have also come down resulting in simultaneous reduction in petrol prices… so the impact on inflation has been minimal despite a hike in diesel," said Naina Lal Kidwai, president, industry chamber FICCI. CII director-general Chandrajit Banerjee said it was "extremely important to align ourselves with international prices."

The impact of these gradual price hikes will not be much on the transportation sector as oil companies are already charging market rates from transporters and the impact of the price hike has been factored in.

Under-recoveries are down from Rs 10 a litre in January to Rs3.80 now.

Against the budgeted fuel subsidy of only Rs 40,000 crore in 2012-13, the gross subsidy for the sector stood at Rs 1.61 lakh crore, of which the government bore the burden of nearly R97,000 crore. For the current fiscal year, the fuel subsidy has been budgeted at around R65,000 crore, which now seems achievable.