Does daily revision of fuel prices help the common man?
State owned oil companies like HPCL and Indian Oil left the 15-year old practice of revising rates on 1st and 16th of every month and adopted a dynamic daily price to quickly reflect changes in cost. Prices of petrol and diesel have been revised at 6:00 am every day since June 16. While dealers and fuel pump owners initially protested, tweaking the regulations resulted in a positive outcome. How is the daily revision of petrol and diesel rates helping common man, though? While the benefit of decline in global oil prices now reflects instantaneously, so does the instability. Let's examine if price rate revision every day is fueling a change in the way India sees petrol and diesel prices for the better or the worse.
Yes 1. Sudden changes in price reflect instantaneously The benefit of any decline in global oil prices would have passed on to the consumers only after a fortnight, but now it is reflected in the billing instantly. Previous practice of revision in rates on 1st and 16th of every month, which began with the deregulation of auto fuel on April 1, 2002, was based on average international oil price as well and foreign exchange rate in the preceding fortnight. Many times, the international rates would fall for one week and rise again. Net effect of this price poly revision was just a marginal change in rates. Now, any decline is passed on immediately, benefiting the common man.
2. Integrating India with the world The influence of world's GDP on India's GDP has increased considerably. Permitting a daily change of petrol and diesel prices is more reflective of the present setting and ensures that the common man can benefit from this integration.
3. Dampening of shocks A gradual change in prices would work better as compared to consumers who are faced with fortnightly revision. Drastic changes associated with the earlier policy are no longer creating a problem for the common man. Revising prices daily has the benefit of dampening and decelerating shocks.
4. Better cash flows As the selling price will be more reflective of the purchasing price, a better cash flow will result. Companies will see increased business and common man will also benefit from the same.
5. No Electoral Sops Fuel price fall had become a populist measure in garnering votes for political elections. So, daily revision in prices will prevent this from happening and ensure that the common man benefits from even the minute revisions or changes in price.
6. Overcome the drawbacks of fortnightly revision For nightly revision results in slower transmission of prices to consumers, and consumers missing out on oil price downfalls. Profits of oil marketing companies was hit due to price rise and inability to transfer the same. Political interference from the government for setting time frame for price reset was also a problem.
7. Easier for Price Discovery and Transmission This move to revise prices daily would be in line with global best practices. The markets will be integrated with global oil supply chains, making it easier for price transmission and discovery. Markets will also not be manipulated by governments. Prices are arrived by rigorous discovery results in benefits for common man and oil marketing companies.
No 1. Change in prices New practices will add one more factor to the change in price of essential commodities such as cereals, fruits, veggies and food items. The prices of essentials fluctuate on an everyday basis, if the mechanism of daily change in fuel prices is considered.
2. Reflecting on book of accounts The price movement will reflect on the book of accounts. Maintenance of cash and sales receipt journals will become a longer process after daily change in prices of fuels.
3. Geopolitical considerations Oil producing economies tweak production schedule to meet vested interests. Greater reliance on global markets will impact Indian consumers negatively as a result.
4. Price instability Petrol and diesel prices impact price stability in a wider context. This impacts the economy in diverse and not necessarily positive ways.
The decision to revise fuel prices started June 16, 2017 and has gone from strength to strength since then. Almost 58,000 petrol pumps across India are now in sync with global oil prices as India joins developed nations like USA, Japan, Australia, Germany and Russia.
The move will align the retail pricing of crude products with international lines, and ensure transparency in pricing of crude products. All in all, this is a good move for common man, provided the scheme is administered fairly across the country. Petrol and diesel form the lifeline for industries and companies too. This decision for daily fuel price revision has far reaching implications for the entire nation.
