Reliance Industries Limited (RIL) is set to start selling diesel from over 1,400 petrol pumps across India from October this year. These operations are run jointly by RIL and Essar Oil in India. Diesel will be sold at the market price, without subsidy.
Within a few years of getting into the petro-retailing business, RIL had cornered about 14% of diesel sales. Unfortunately, the differential in the diesel prices of private retailers and state-owned oil marketing companies forced RIL to shut down its pumps in 2008.
Market Pricing of Diesel
Since diesel accounts for 44% of the total consumption of petroleum products in India, market pricing of this product is important for its retail segments to work viably. It is believed that about 85% of total sales at fuel pumps across highways and nearly 50% of sales at fuel stations nationwide consist of diesel. With the consumption of this fuel rising by 35.52 million tons within a short span of 10 years, the market is thriving more than ever before.
UPA’s Attempt to Minimize Losses
Diesel prices have been rising at the rate of 50 paisa per liter every month since January 2013 and were last raised on August 31.In this period, rates have cumulatively gone up by ₹11.81 per liter. The objective of these monthly hikes implemented by the former UPA government was to minimize losses incurred by the government due to the subsidies provided on diesel prices. The losses have since dipped significantly.
In May last year, the monthly increase trimmed losses to less than ₹3 per liter. However, the fall in the rupee value led to losses of ₹14.5 per liter in September. Since then, the monthly hikes have continued and the rupee as significantly strengthened.
Diesel Prices under the New Government
Fortunately, since March this year, losses have rapidly decreased with expectations about a decisive and stable government under the leadership of Prime Minister Narendra Modi. The new government has played a significant role in helping the rupee gain against the dollar.
Between March and May this year, when the Modi government came into power, losses on diesel were pushed down by approximately ₹4 per liter. In August, the losses stood at ₹1.78 a liter. Last Saturday, diesel prices were hiked by 50 paisa per liter while petrol prices were slashed.
Deregulation of Diesel Prices
The current market sentiment is that deregulation of diesel prices looks imminent. The difference between the retail sale price and actual cost of diesel dropped to a historic low of only 8 paisa. For the first time in over a decade, it has been found that retail pump prices are almost in sync with the imported cost of diesel.
We also owe this situation to the monthly increases and softening of international oil rates. If this trend continues, India’s retail diesel prices will be at par with global rates within the next 7 days, not necessitating the next increase of 50 paisa per liter due on October 1.