The government’s decision to allow fuel-retailers to change petrol and diesel prices everyday, in sync with global prices, is a progressive step. It will bring oil pricing in the country closer to the best practices in the international market. To begin with, state-owned oil firms will implement this policy in five cities — Puducherry, Visakhapatnam, Udaipur, Jamshedpur and Chandigarh — from May 1. The government aims to have daily market-linked prices at all petrol pumps in the country, but has not specified a date by which it intends to have such a practice in place. Currently fuel retailers revise prices every 15 days based on the average prices in the preceding fortnight and the currency exchange rate. In the new pricing regime, petrol pump rates will reflect daily movement in international prices and rupee-dollar fluctuations. This means that the Indian retail market will be more closely aligned to global oil market dynamics and the consumer will be cushioned against sharp surges in prices — often the case with the 15-day pricing cycle.
The benefits of a competitive market will, however, still elude the consumer. Since May 2014 when the current government assumed office, global crude prices have fallen from $ 108 to $ 55 per barrel. In comparison, petrol prices in the country have fallen marginally — in Delhi, only by about Rs 5 a litre, from Rs 71.41 to Rs 66.29. The gains from the falling prices have largely been pocketed by the government through increased excise duty. The country’s import pricing parity means that the state-run PSUs, and a few private outfits, sell oil at the same price. Unlike in mature markets, oil prices within an Indian city do not vary from one petrol pump to another and the consumer does not have much of a choice with respect to oil prices.
Only state-owned firms, the exploration and production outfit, ONGC, and private refineries can import petrol and diesel in India. The country does not have a policy for independent fuel retailers. Compare that to the US where the likes of ExxonMobil, Chevron, Shell or Conoco-Phillips own barely 5 per cent of the fuel outlets. The rest of the retail business is run by independent players, who are in no obligation to ensure business to a captive refinery. In contrast in India, an IOC fuel outlet, for example, buys petrol or diesel from a refinery run by the same PSU outfit. Such elimination of competition means that decontrolling retail prices will give the consumer only a modicum of the benefits of the market. A policy on independent oil retailers should be the next move on the government’s agenda.