Political compulsions in way of diesel deregulation: Reddy

Despite admitting the necessity, Oil Minister S Jaipal Reddy today said practical and political compulsions are deterring the government from freeing diesel pricing from its control.

"While their [RBI] suggestion has the academic relevance, we have to take all practical and political difficulties into consideration," Reddy said, commenting on the RBI's suggestion that total deregulation of diesel prices would help contain the trade deficit.

State-owned oil companies currently sell diesel at a discount of Rs 14.57 per litre to its cost of import. Deregulation, or freeing of pricing, would result in retail prices being hiked by Rs 14.57 a litre, which would fuel inflation, as diesel is mostly used in transportation.

The government had in June, 2010, freed petrol prices from its control, but retail rates have not moved in tandem with the cost. Retailers currently lose about Rs 1.50 a litre on petrol.

The RBI had in its third quarter review of the monetary policy said it would be prudent to fully deregulate diesel prices to contain both aggregate demand and trade deficit.

"That's [deregulation] all desirable in principle. But we will have to take the inflationary condition of the country into consideration," Reddy said.

The Petroleum Ministry has been asking for a revision of diesel prices. However, any decision on the issue has to be taken by the Empowered Group of Ministers (EGoMs), which is not scheduled to meet anytime soon in view of Assembly elections in five states, including the all-important Uttar Pradesh polls.

Meanwhile, Reddy said his ministry has made repeated recommendations to the Finance Ministry for raising the price of diesel meant for personal vehicles.

"They may consider increasing the customs duty. However, this is completely the pledge of the Finance Ministry," he said.