In a move that will bring sea changes in India’s energy regime, the Prime Minister’s Office (PMO) has suggested the petroleum ministry to decontrol retail fuel prices and link the same to international market prices of crude. The PMO has advised that the step should be discussed while finalizing next fuel price cut which is expected in the next few days.
The Indian government ends up spending thousands of crores every year to compensate the oil marketing companies (OMCs) for selling fuel at prices below cost of production. By linking fuel prices to market prices of crude oil, government will be able to save on these subsidies. It may still have to pour in money to keep fuel affordable if there is unexpected rally in crude prices as was seen in summer months of last year.
However, the only problem in moving on to the deregulated regime may be the fact that the while public sector OMCs are making profits on diesel and petrol, these are still losing money on retail sales of kerosene and cooking gas. The ministry believes that profits from petrol and diesel should be used to make up for losses that companies bear on LPG and kerosene.
Can the Government really afford to do this without any opposition from within and the members of its coalition partners ?