The government is contemplating linking retail fuel prices to the crude prices in international markets, which will essentially mean that within certain limits fuel prices will be able to freely fluctuate with crude prices. The information was given by deputy chairman of the Planning Commission M S Ahluwalia.
One of the immediate impacts of the move will be that retail fuel prices will come down again since the current administered prices are higher than what will be implied by current crude prices. Crude oil has softened around 70% to around $40 per barrel from its peak of around $146 per barrel.
India imports more than 75% of its crude oil needs and the energy hungry country ends up spending a huge amount of money in subsidies linked to petro products as the government attempts to shield the public oil marketing companies from high fuel prices. By linking fuel prices to international prices, government can save itself from such subsidies and there will be no better time to do this than current when crude is below $50 per barrel.