India partially deregulates diesel prices

NEW DELHI (Reuters): State-run Indian oil marketing companies can now raise diesel prices in line with increases in global crude oil prices, Oil Minister Veerappa Moily said on Thursday, a move that could help the Government reduce its vast subsidy bill.

“Oil marketing companies have been allowed to raise diesel prices in small quantities over a period of time,” Senior Oil Ministry Official G. C. Chaturvedi said. He did not give details about the timeframe.

India’s policy to subsidise retail prices of fuels such as diesel, which accounts for about 40 per cent of refined fuel consumption, is a major drain on the budget.

Ratings agencies threatened last year to strip India of its investment-grade credit rating if the Government did not take steps to rein-in a widening fiscal deficit.

Finance Minister P. Chidambaram has repeatedly vowed that the deficit will not exceed 5.3 per cent of GDP this financial year.

India imports more than 80 per cent of its fuel needs. The Government liberalised petrol prices in June 2010, but has often prevented them from being raised to reflect rising oil prices on global markets.