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Govt to deregulate diesel prices in next six months: Oil Minister

21 Nov 2013 Evaluate

Oil Minister Veerappa Moily has said that diesel prices will be deregulated in six months with gradual increase in prices. Ruling out a steep increase as it would stoke inflation, V Moily has said that the government will increase diesel prices by 50 paise every month. Currently, state owned retailers control 95 percent of the petrol pump sales and sell diesel at government-fixed rates, which are way lower than the cost of production.

The move is also aimed to contain the fuel subsidy bill which has become the major reason for high fiscal deficit of the country. Earlier, in January the government had allowed state-run oil marketing companies to increase diesel rates by 50 paise every month until pump prices are aligned with market rates. After this initiative the under-recoveries (losses on diesel sales) had come down to Rs 2.50 litre but soared to around Rs 9.28 per litre owing to the rupee depreciation.

With the international diesel rates at $122 per barrel and the rupee at 63 per dollar, the government will have to raise the prices by Rs 10 per litre in the next six month in order to completely deregulate diesel and link it to market rates. Meanwhile, at present rates it will take 19 months to clear all losses on diesel sales.

India imports about 75 percent of petroleum products requirement and has an import bill of around $160 billion for petroleum and natural gas alone. Oil ministry has also formulated a roadmap for cutting India's dependence on fuel imports. As per the ministry’s roadmap, India’s imports will be cut to 50 percent by 2020 and by 25 percent in 2025 through intensive exploration and exploitation of untapped reserves. Presently, only 0.93 million sq km area in India is under exploration and production activities in 19 basins as compared to total estimated sedimentary area of 3.14 million square km, comprising 26 sedimentary basins.

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