Global rating agency Moody’s Investors Service pitched for a cut in fuel subsidies through a gradual process that in turn will lead to higher product prices and prove credit positive for oil marketing companies.
The rating agency underscored that it expected government’s approach likely to be staggered one, which is similar to the ongoing Rs 0.5 per liter hike in diesel prices every month, since a one-time hike besides being politically challenging, would have serious impact on inflation.
However, it added that it also expected the government to be in a position to completely deregulate diesel prices over the next 12 months, as retail prices move closer to international market rates. It estimated that losses or under-recovery, at which diesel, kerosene and LPG are sold, to total at Rs 1 lakh crore (USD 18.3 billion) in 2014-2015, in a scenario wherein, the price of crude oil remained elevated for the rest of year and the government does not increase retail selling prices of LPG or kerosene.
Presently, government keeps the prices of these three products at below international market prices and compensates retailers for the losses some three to six months later. This report comes on the heels of government raising the price of non-subsidized cooking gas (LPG) by Rs 16.50 a cylinder and that of jet fuel by over half-a-per cent after a hike of Rs 1.69 a litre in petrol prices and 50 paise hike in diesel prices on Monday.