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Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
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Mere decontrolling not acceptable 
(Mon, 13 Aug Pre-Open) 
 
Indian Oil Corporation Limited (IOCL), India's largest oil marketing company, seems to be in no mood to tolerate the Indian Government's empty pretense over decontrolled status of petrol any further. And this may be rightly so. After all oil marketing companies (OMCs) such as IOCL, Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) are not getting the real benefit of decontrolling of petrol price. As a matter of fact, they are incurring losses on account of the same. Why?

The government had decontrolled petrol prices in June 2010. However, this was done only on paper. OMCs still need Government's approval before raising petrol prices. Despite the government's claims that the petrol price is totally decontrolled, in all practical purposes, it is tightly gripped by the government itself. And there is strong reason for the same. Petrol price hikes always generate a huge hue and cry. Hence, to eschew any major political fallout, the Indian government mostly refrains from giving the go-ahead for any proposed petrol price hike by companies. Especially at the time of election or the prevailing high inflation situation in the country, getting approval becomes an uphill task.

Well, the government may avoid political repercussions. However, the whole thing leaves OMCs bleeding. For example, as per an estimation, IOCL alone is losing Rs 200 m per day in petrol sale. The worst part is that all these losses would not be compensated by the government because it is now part of the category of so called de-controlled commodity.

Evaluating the situation in terms of high inflation and the government's political obligation, IOCL is of the view that it is better to get petrol back on the list of products under control. In that situation, at least it would get compensated for the losses like in the case of other petroleum products such as diesel, LPG (Liquid Petroleum Gas) and kerosene. And IOCL is going to pitch hard for government-controlled pricing regime for petrol in the coming days.

And in that case, the Indian government would find itself at crossroads again. If it gives free hand to OMCs, then petrol price would increase and inflation may again go through the roof. On the other hand, if the government takes petrol back in the list of controlled commodities, it would face a huge burden of fuel subsidy. It would be worth mentioning here that the Indian government is already reeling under the burden of huge oil subsidies this year. And the fiscal deficit is going completely out of control. So much so that India is on the verge of losing its investment rating from different global rating agencies.

Will the government bite the bullet with respect to IOCL's petition for government-controlled pricing regime for petrol? Only time will tell. However, the faster the government acts, the better it is for the Indian economy.

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