Natalie Obiko Pearson and Bibhudatta Pradhan New Delhi
INDIA has scrapped controls on diesel prices and increased natural gas tariffs in Prime Minister Narendra Modi’s biggest steps towards curbing subsidies, spurring energy output and reviving the economy.
The price of diesel would now be determined by the market and the price of natural gas would climb by about a third, the government said last week.
Billionaire Mukesh Ambani’s Reliance Industries, locked in a dispute with the government over output levels from some gas fields, would not get the proceeds of the higher tariff until the spat was resolved, the government said.
The changes build on Modi’s vow to revitalise the economy and precede local election results yesterday that exit polls predict will cement his power.
The diesel step eliminates the risk of the administration and state-run crude producer Oil & Natural Gas Corporation (ONGC) bearing the brunt of such subsidies in future, while higher gas prices may spur investment in exploration.
“Diesel price decontrol and the increase in gas prices will benefit us and the Indian economy,” said chairman DK Sarraf.
The new gas tariff is $5.61 (R62.11) per million British thermal units from November 1, up from $4.20, and will be reviewed half-yearly. Sarraf said each $1 rise in the gas price boosted ONGC’s annual profit by 23.5 billion rupees (R4.24bn).
State refiners cut diesel prices by 3.37 rupees a litre after the fuel was freed from controls, taking advantage of a 22 percent slide in Brent crude prices this year.
India had imposed diesel price caps to keep the fuel affordable for the poor. The cost of cushioning the tariff was about 4 trillion rupees in the past 10 years.
Reserve Bank of India governor Raghuram Rajan urged Modi to scrap the policy after inflation slowed and crude slumped.
Yesterday’s development was “good all around – for refiners and the government’s budget deficit”, said Alex Mathews, an analyst at Geojit BNP Paribas Financial Services. “It’ll be good for share prices of refiners.”
Diesel accounts for 43 percent of petroleum consumption. – Bloomberg