Deregulating oil sector can be a game-changer; Will FM oblige?

One sector that has been a perennial headache for the government over the year has been oil & gas. Any increase in prices of diesel, petrol, kerosene and LPG has met with strong resistance from both the public and politicians.

[caption id=“attachment_242210” align=“alignleft” width=“380” caption=“Reluctance to increase prices has in turn affected the financial strength of oil marketing companies, which have to bear the brunt of the subsidies. Reuters”]  [/caption]

Reluctance to increase prices has in turn affected the financial strength of oil marketing companies, which have to bear the brunt of the subsidies. However, with rising oil prices in the international markets and falling rupee, subsidies are becoming unmanageable. Over Rs 1,40,000 crore is the amount of subsidy that is to be recovered by either increasing the prices or the government paying the companies.

Both the industry as well as the public at large will be keenly watching the finance minister for his recommendations.

Deregulate the sector

Top among the list of expectation is a deregulation of the sector. It is very unlikely that this demand will be met as oil companies will then be allowed to hike prices of fuel at their own will. Given the huge gap between the subsidised price and actual price, any decontrol will lead to a price shock and a sharp jump in inflation.

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Impose excise duty on diesel cars

In order to reduce the usage of subsidised diesel, there were talks that government will impose additional excise duty on diesel vehicles. Out of the total under recovery, 54 percent is on account of diesel alone. While the imposition is bad news for the auto sector, it will be positive for the oil marketing companies.

There are other smaller expectations that the oil sector has from the finance minister, but the game changing ones, like decontrol is unlikely to be met. This year too the sector is likely to be left out as meeting their demands will be suicidal for a government that has lost badly in the current elections.