Oct 6, 1999|
Diesel price hike: Cause for a celebration?
The Government has announced a 40% hike in the price of high speed diesel (HSD) on the back of a surge in the international crude prices, which recently breached the US$ 25 per bbl mark. The move is expected to reduce the deficit in the oil pool account by Rs 66 bn.
Despite the measures initiated by the previous government under which diesel prices were to be adjusted monthly in line with international parity prices, an implied subsidy has developed over the last few months. This was mainly due to the political uncertainity at the centre, which restrained the government from reworking prices, even as oil prices surged. As a consequence, the oil pool account started to reflect a deficit in the form of large payables to the oil companies.
This had a dual effect. On the one hand, oil companies had to resort to external financing to meet their requirements as their funds got blocked in the oil pool account. More importantly, it aggravated the overall deficit position in the economy even as the central government's deficit ballooned (expected to touch 6% of GDP).
The hike, though sharp, will alleviate the pressure on the oil pool account. It will also go a long way in improving the funds position of the oil companies. In light of the fact that diesel prices had to be rationalised sooner or later, the step is in the right direction. Moreover, the disparity in the petrol and diesel prices that exists in India, due to political reasons, will stand reduced now.
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