With an aim to cut fuel subsidy bill, Oil Ministry has stated that the monthly diesel price hikes of 40-50 paise a litre are likely to continue till under-recoveries (losses) on diesel are completely wiped out.
Earlier, in January 2013, the Cabinet had decided to increase diesel prices in small proportion monthly, until the difference between the retail price and the cost of production is bridged. Since the Cabinet move last year, diesel prices had raised by a cumulative Rs 8.33 a litre in 14 installments.
Presently, state-owned oil companies such as Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp currently lose Rs 4.41 on every litre of the fuel sold. However, under-recoveries on diesel for companies have been on a declining trend over the past one year due to monthly increase in diesel prices and appreciation in rupee value. If the Indian rupee appreciated to 56 to a dollar, all the losses will be wiped out and the diesel will be automatically deregulated.
Oil Ministry had also stated that the oil subsidy burden for new government will be the lowest since 2011-12. It expects that under-recoveries on sensitive petroleum products would fall 20 percent from Rs 1,39,869 crore during FY14 to Rs 1,11,000 crore in FY15. The Ministry’s calculations are based on the crude oil prices at $105-108 a barrel and the rupee at about 58/dollar.