Government to deregulate diesel prices in six months

The Government of India has announced that there will be a deregulation of diesel prices in the next six months. This means the Indian consumers will see a hike of Rs 10 per litre by May 2014. The announcement was made during the KPMG Energy conclave in Delhi by the Minister of Petroleum and Gas, Veerappa Moily.

Currently the state-owned fuel retailers, who control 95 per cent of the petrol pump sales, sell diesel at government-fixed rates. These rates are much lower than the cost of production due to which the companies have piled up losses. The government had in January this year allowed them to increase the price by up to 50 paisa a litre every month as part of a plan to gradually remove the subsidies given on the fuel.

With such a steep hike, the government is surely going to get some backlash from the consumers as well as from the Opposition parties. This will be a shocker to auto companies like Honda who invested heavily when the transition from petrol cars to diesel happened.

"Under-recoveries (losses on diesel sales) had come down to Rs 2.50 because of monthly increase but they soared to Rs 14 as the Rupee depreciated sharply. Currently, under-recoveries on diesel are at about Rs 9.28 per litre," said Veerappa Moily.