Emboldened by the Cabinet decision to virtually “deregulate” pricing of diesel and give a mandate for a phased hike in prices to completely eliminate subsidy over a period of time, oil marketing companies (OMCs) on Thursday announced a marginal hike of 45 paise a litre. This decision is likely to have an adverse impact on inflation and lead to hike in rail fares and road transport.

The OMCs also decided to reduce the price of petrol by 25 paise, two days after they had hiked it by 35 paise. While diesel will now cost Rs. 47.60 in Delhi, petrol will cost Rs. 67.46. Both the hike in diesel and reduction in petrol prices will come into effect from Thursday night.

The OMCs are likely to make diesel available to all bulk consumers at the market rate. It would effectively lead to a Rs. 11 hike per litre for direct or bulk consumers who include the Railways, defence, State transport undertakings, cement and power plants and mines. This could also have a cascading effect with an all-round hike in public transport.

As soon as the Petroleum and Natural Gas Ministry issued a formal notification late on Thursday evening, the OMCs went into a huddle and decided to hike the diesel price by 45 paise in the first phase. It is estimated that the OMCs will effect an almost 50 to 60 paise hike every month in diesel prices until the subsidy deficit is wiped out completely.

It has been pointed out that around 17.77 per cent of the total diesel sale in the country is to the bulk/direct consumers. Hence, in order to reduce under recovery on sale of diesel further, the Cabinet decided to allow the OMCs to sell diesel to bulk consumers at the market determined rate.

Under this regime, sale of diesel to all consumers taking bulk supplies directly from the installations of the OMCs at the non-subsidised price will be notified on 1st and 16th of every month. This move would result in reduction of under recovery on diesel by Rs. 12,907 crore per annum at current rates.