From May 1, 2017, the prices of petrol and diesel in India will be in sync with international prices and thus change every day. The daily price revision will be launched by state-owned fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL), which own over 95 percent of nearly 58,000 petrol pumps in the country. Private fuel retailers such as Reliance Industries and Essar Oil are also expected to follow suit.
If successful, the pump rates will reflect daily movement in international oil prices and rupee-US dollar fluctuations, instead of a fortnightly average as per the present system. This move will bring the much-needed international standards in the Indian fuel retail market.
This pilot project of daily revision of petrol and diesel pricing will be first introduced in five select cities from May 1 and gradually extend it to all over the country. The five cities include Puducherry, Vizag in Andhra Pradesh, Udaipur in Rajasthan, Jamshedpur in Jharkhand and Chandigarh. “Oil companies will implement it on pilot project in five cities. After this, they’ll decide what to do with rest of the country,” Dharmendra Pradhan, Petroleum minister, said.
IOC chairman B Ashok said, “It is technically possible to change rates daily but we have to first do a pilot. Once pilot is done and its implications studied, we will extend it to other parts of the country.”
The System Followed as of Now
- State fuel retailers revise rates on 1st and 16th of every month, based on average international price of the fuel in the preceding fortnight and currency exchange rate.
- Even though the petrol price was freed from government control in June 2010, diesel rates were deregulated in October 2014, the oil companies were perforce guided by political considerations, where during the period of elections the prices reduced with the aim to tap into the vote bank. Once the elections were over, the government allowed the oil companies to charge higher prices, to compensate for the losses incurred, even when international oil rates had fallen.
The Advantages of Daily Price Revision
- The consumer will be more aligned to market dynamics.
- The fluctuation in prices will remain under control.
- Political pressure to change prices according to their whims and fancies will no longer be there, which will benefit the consumers.
- The move will align the Indian fuel retail sector with international standards and benefit the oil companies.
- The move will also eliminate any irregularities in the inventory management by dealers expecting a change in price.
- The move has the potential to reduce the government monopoly in the oil market by encouraging the private sector companies to boost their presence in the oil retailing sector.
- The entry of private players in the fuel market will mean higher competition, which in return will ultimately benefit the consumers.
- Consumers will also benefit from a more stable price format, as daily price revision will facilitate a more smoother passing on change in oil prices to consumers.
- The fuel retailing industry will also benefit in the long term as the entry of private players will mean acquiring of land and other infrastructure, and help the economy by injecting more business.
The consumers have to be prepared for a daily fluctuation in the price of essential commodities such as food items, cereals, fruits and vegetables as they are linked to transport, which in return is linked to price of petrol.