The government’s decision to introduce daily revision of automotive fuel prices at pump points from Friday is a welcome reform measure that forms a part of the deregulation process that has taken place in the past few years. The state-owned oil marketing companies have taken this as another step to reform the pricing mechanism which has become more and more flexible over the years.
They had experimented with the daily dynamic model as a pilot project in five cities last month and have now found that it can be rolled out nationwide. Under the new system, the prices of petrol and diesel would change every day in accordance with the global prices of oil and the changes in the rupee-dollar exchange rate. This will bring the oil pricing system in India in alignment with international practices. This is the most important reform after the freeing of petrol prices in 2010 and diesel prices in 2014. At present, prices are revised every fortnight on the basis of the average price of the past 15 days. For the consumer, it makes sense to pay the current price rather than a past price that does not exist. Since the daily price movements are not usually large, the consumer does not feel any major pinch.
In the fortnightly scheme, at times there are big price shocks. The prices are sometimes not revised for a long period for political reasons as it happened in March and April when some state Assembly elections were taking place. A transparent price regime with daily changes will help to avert such arbitrary practices. India’s domestic oil economy is fast growing and the country is the world’s third largest importer of crude. An economy so integrated with the international markets cannot afford to shun global practices. Petrol pump owners had pointed out some practical difficulties in the implementation of the new system. These were technical and have now been resolved with the government agreeing to effect the price change at 6 am instead of at midnight. The scheme is now ready for launch.
The oil price regime needs still more reforms. Though it is claimed that prices have been deregulated, the fall in international prices is not proportionately translated into retail prices. Though global prices have halved in the last four years, there has only been a marginal decline in the retail prices. This is because the government does not let go the taxes and duties imposed on the products and keeps the benefit of price declines to itself. The government should pass on the fall in prices to the consumer and allow greater competition in the retail market.