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OIL PRICE
DEREGULATION
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INTRODUCTION
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DEREGULATION

Decontrolling or deregulating the petrol prices

mean that, the government will no longer be
subsidizing petrol prices and the prices will be
purely linked to international crude prices. In the
case of diesel prices, though it will be only
partially regulated- the reason being an attempt to
avoid sudden spike in inflation.
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Overview
• Government of India deregulated the prices of petroleum
products

• Decision was taken on 25 June 2010 at EGOM (Empowered

Group of Ministers)

• Decision was made on the basis of recommendation by Kirit

Parikh Committee
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The Big Rider

• This is not the first attempt by the government to deregulate

petroleum product prices.

• In April 2002, in an attempt to phase out subsidy on petroleum

products, the government dismantled the administered pricing

mechanism (APM) For pricing of Petrol an diesel
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ECONOMY BEFORE
DEREGULATION
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• APM and the oil pool account abolished in 2002.

• Government starts providing subsidies in the
annual budget for petroleum products.
• OMC took control of adjusting prices.
• Deficit’s started to grow from 2004.
• By 2006 the deficit was $10 billion for petrol and
diesel.
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• Between 2002 and 2005 the prices of petrol increased

64% in India.

• International prices increased over 140%.

• The government issued government bonds to OMC’s in

order to reduce under – recoveries in 2005-06.
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Why high prices?

• Very high central taxes.

• State government charge even higher taxes.

• 75% of petroleum products are imported.

• Inelastic demand for Oil.

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Composition of fuel prices.

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• Subsidies.

• Deficit at $17 billion in 2009 for commercial fuels.

• Government bonds not helping.

• Deregulation planned since 2002.

• Due to low prices of fuels inflation also at a low.

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Inflation rates
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CAUSES
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• Efficient global player.

• Allocation of funds for social welfare.
• Competition and prise stabilization.
• Development.
• Increase investment.
• Private players will re-emerge.
• Lessen the inflation burden.
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POSITIVE IMPACT OF
DEREGULATION
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• Private Players will • Improve Valuation of

re-emerge OMC
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• Will reduce Budget Deficit

• Social Initiatives

• Positive signals in the Global Market

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NEGATIVE IMPACT OF
DEREGULATION
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• Increase in Oil Prices • Will the common man benefit OR

lose from the petrol price
deregulation...???

 
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•Inflation

•Higher Interest Rate

 
•Artificial Shortages
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CONCLUSION
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CONCLUSION
• The overall de-regularising effect will be helpful to Government

• Reduction in subsidies

• However, absence of:

o The timeline of the diesel price deregulation,

o The frequency of change in petrol price, and

o Pricing limit (band) for petrol price takes some sheen off the

decision.
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THANK YOU
Anuj Veer Singh 67
Mrinal Kamath 77
Purva Chhabra 87
Shreet Shah 98
Zeeshan Esmail 108
Anuj Prajapati 118