Temporary Smile 3.37 Price cut

Today Modi's government announced one of its biggest reforms by deregulating Diesel price. (Earlier in UPA Government Petrol prices were deregulated)

Why Diesel matters much?

In India, the fuels like Diesel, Kerosene, Domestic gas prices are controlled by Government. So Government only fix the prices.

Market price may be high or low, but Government will fix the price of Diesel.

UPA government had decided to raise diesel price in small dose until it align with market price. With continuation to that Diesel price are raised 50 paise every month & in past 19 months Diesel price are raised by Rs. 11.81 per liter.

Now market price of crude oil nearly falls under $80 due to global situations. but keep in mind its not permanent.

We can't or even US can't predict the oil price. It will be in fluctuation through out the year. As of now the price is below 80 $. but you cant expect the same through out the year.

Lets take an small example to explain the biggest risk in deregulating diesel price

(before reading example,Keep in mind 

Change in Diesel price will effect not only your purse while paying in petrol bunks but also will effect on prices of all goods you consume, from rice to vegetable to soap you use for bath since Diesel is the largest consumed fuel in India with around 65 % in overall oil consumption.

Case 1: 

 * November 2014, Crude oil cost reaches its history low of 70 $. Cheers Diesel price will be reduced further 3 or 4 Rupees. 

* December 2014: Crude oil price starts rising to 75 $. No problem, you can adjust with 1 or 2 Rupees rise in Diesel price.

* April 2015: Crude oil price at its peak rises with 90 $. Now Diesel price will be adjusted to align with international market price. Oh god, you have to pay Rs. 10 extra per liter.

* November 2015: Cheers Crude oil price hits century (100 $). Be ready you have to pay 15 extra per liter than what you are paying today.

If Diesel price just raised 10 Rs in 6 months, here are the simple things which will happen subsequently 

* Rice & Wheat - Most Indian farmers uses pump sets to water their lands & pump sets are fueled by Diesel.

* Buses & Trains - Already Railway minister is asking for hike in price tariff since Railways is in losing some hundred crores due to Diesel price. If diesel prices increased further then surely no choice for Railway minster other than making railway a costly trip.

No need to mention about buses since most Government bus services are already running in loses due to dual pricing policy of union government for diesel. 

* Vegetables & Eggs - Metro cities & even towns are supplied with fresh vegetables from villages. Note Tamilnadu is the sole supplier of vegetables to Kerala state in daily basis.

Surely Lorry owners will ask for price rise. You may remember the Lorry owners union strike against diesel price rise earlier which affected Egg price.

Both UPA & NDA government played very well to reduce their subsidy burden. but the beautiful thing is UPA did this thing at wrong time and prized with blames of people. Modi did the same at time when diesel price are low at market. 

Silence before the storm !