deregulation of oil prices and indian economy

Kirit Parikh report has suggested the government to deregulate the oil prices in the country. I believe that at least this report will address all the problems of government-owned oil companies, which may also provide a level playing field to the private oil marketing companies. And the financial budget must provide a roadmap for de-regulation of petro-product prices or a more transparent subsidy-sharing mechanism should be announced. I also think that before they freeing up the price they also should remove un-neccesary tax burden on the fuels. More than 50% of the prices are because of various taxes and duties.

The government is considering a proposal to deregulate

fuel prices. This move is expected to ease pressure on government finances and improve earnings of state-run oil marketing companies.

The government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers from sharp fluctuations in energy prices. The price-setting policy affects earnings of OMCs such as BPCL, HPCL and Indian Oil which are forced to sell fuel at below the prevailing market rates, for which the government provides certain subsidies to such companies to compensate the sale of fuel at cheaper rate .If the cabinet accepts the Parikh Panel recommendations about the petroleum product prices deregulation, then it would be taken as a progressive reform by the market and will send positive signals about our economy. In fact fuel, fertilizer and food subsidy are major reasons for large fiscal deficit and if we can reduce this burden by undertaking such reforms then it will lead to better investor sentiments towards India.