Why Petrol Price Deregulation is Good
The decision to deregulate the price of petrol went mostly uncommented on. “Deregulation” means that the Government of India ( GOI ) will not set petrol prices anymore; instead companies will. In other words, petrol prices at the pump will be decided by global crude prices. Before deregulation, GOI set fuel prices to be lower than global prices. Take a look at the chart below. It shows the cost of fuel price subsidies to companies: Source: Petroleum Planning and Analysis Cell By deregulating petrol prices, at least losses on the petrol front get eliminated. (By the way, this explains why Shell’s pumps charge a higher rate: they have been charging unsubsidized rates. And why GOI owned oil companies like HPCL and BPCL are often loss making ). But what’s the problem with continuing the subsidies? Well, someone has to pay for the subsidies eventually. So who pays? People like us. Parts of our taxes are used to bear the subsidy cost. Also, these subsidies show up as GOI debt. High GOI...