Implications of Deregulation of Petroleum Prices in India

The Government of India has historically subsidized energy with the objective of protecting consumers from international price volatility and providing energy access for its citizens, especially the poor. However, energy subsidies place a heavy burden on government budgets, while often failing to reach their targeted beneficiaries.  In June 2010, the Indian government deregulated the price of petrol. However, prices for diesel, kerosene and domestic LPG continue to be regulated. Even in the case of petrol, OMCs can only change prices every fortnight, and only after seeking approval from the government. In October 2014, the government has deregulated the diesel prices also.

Implications

The move to deregulate the petroleum prices has been a boon for the Indian oil companies and has brought cheer to the faces of ordinary consumers. All three related factors are playing in the favourable zone viz. the composition of Indian crude oil basket, global prices of its elements and the rupee-dollar exchange rates.

The deregulation which means the oil companies will be able to change price at a time of choice cannot override strong political realities of India which mean that despite the deliverance of oil price deregulation the government can step in at any moment if the stakes becomes too high to give way to a sound commercial action. Also, the subsidy given to fossil fuels should not be unlimited. This can have dangerous consequences for the environment. Even the energy consumption patterns have to be changed for the poorest in the country which can happen if the subsidies are targeted and not the blanket distributions.