Diesel price cut in India for the first time in 5 years

Diwali has come early for owners of diesel-engined vehicles in the country. In a far-reaching move, the government lifted government control on the pricing of the fuel, which has made it cheaper by Rs 3.37 per litre (including VAT) in Delhi, with a corresponding decrease in other States. What has helped is that globl crude oil prices are at a four-year low. Global prices have fallen to $84 a barrel, a fall of nearly 25 percent in the last six weeks.

The move marks the first reduction in diesel prices since January 2009 and henceforth prices will be market-determined, which means the retail selling price, like that of petrol, will reflect movement in global fuel prices. Diesel prices have been raised continually since January 2013 by 50 paise a litre 19 times, cumulatively rising by Rs 11.81 a litre.

As per a statement issued by the largest oil marketing company, IndianOil Corporation, “The International oil prices have been on a steady and steep decline in the last few weeks. The falling international prices of diesel warrant a decrease in selling price of diesel in the domestic market. The movement of prices in the international oil market and the Indian rupee-US dollar exchange rate shall continue to be closely monitored and developing trends of the market will be reflected in future price changes in diesel prices.”

With this cut, diesel price per litre stands at Rs 63.64 (down Rs 3.72) in Mumbai, Rs 55.60 (down Rs 3.37) in New Delhi, Rs 60.30 (down Rs 3.51) in Kolkata and Rs 59.27 (down Rs 3.65) in Chennai.

Soon after the price cut was announced, Anand Mahindra, chairman and managing director of Mahindra & Mahindra, tweeted: "Just what the doctor ordered. Not just because the cut will help boost the economy but because it signals commitment to freemarket reforms. It shows the government is coherent enough to to seize the right moment to to initiate a tough reform."

And Dr Pawan Goenka, executive director, M&M, also tweeted: "Because of lower fuel prices some states had imposed additional levies on diesel vehicles. Hope that will now be corrected."

Meanwhile, N Raja, director and senior VP (Sales & Marketing), Toyota Kirloskar Motor, commented: "We welcome the government's decision to deregulate the price of diesel especially in time with the festive season. This is good for the consumers as they can now decide the car type, based on their preference and utility. The auto industry is witnessing a positive momentum and this step will further add to the upswing of the industry."

The diesel price cut is expected to reduce inflation and ease freight movement rates, given that diesel-engined commercial vehicles ply the length and breadth of the country and is the fuel of use for all truckers. Importantly, market-determined prices of diesel (in addition to petrol) could see new playes entering the field of fuel retailing. Oil refining companies are currently selling fuels at a profit for the first time.