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Losses on diesel have come down to INR 1.62 per litre in the fortnight ending Monday from INR 2.80 in the preceding cycle. Hypothetically, India's largest selling fuel would automatically stand deregulated in three months with the monthly hike of 50 paise a litre, assuming the global product price and rupee exchange rate remain at the current levels.

This is the lowest level of under-recovery in diesel in a long while, attained on the back of subdued product prices in global trading hubs and a strengthening rupee. For many in the industry, it presents a golden opportunity for the government to do away with subsidy on the fuel for good — if necessary — by raising the price by INR 1.50 at one go.

When the Narendra Modi government came to power last month, losses on diesel stood at INR 4.41 a litre. In the backdrop of the PM's warning of hard economic decisions, the current level of under-recovery provides a low-hanging fruit for the government to grab, perhaps even as part of the Union Budget next month. In June 2010, the UPA government had raised diesel price by a steep INR 2, while freeing up petrol price, without much public murmur.

The crisis in Iraq and the gas war between Russia and Ukraine, however, could be the proverbial fly in the ointment. Oil markets maintained a nervous calm at $112 a barrel for London benchmark Brent crude on Monday, after hitting nearly $115 on Friday. But India's average crude cost has risen to $110.5 a barrel this fortnight from $108.5 earlier.

Simultaneously, the rupee exchange rate against the dollar has also moved a tad from 59.33 to 59.48, leaving little scope for any leap of faith for the government. Even the inflation rate, pegged at a record five-month high of 6 Percent, can temper the government's appetite for boldness.

It would then be another missed opportunity in case the gap between cost and government-capped pump price of diesel widens again. The UPA had missed a similar chance to fully free up the fuel retail market after oil prices had crumbled to $40-levels in the aftermath of a historic high of $147 a barrel in 2008. Fuel subsidy is projected at INR 91,665 crore for 2014-15 against INR 139,869 crore in 2013-14. A full deregulation would pave the way for private retailers to revive their mothballed outlets.

This would immediately create jobs through the hinterland and usher in real competition. Private companies such as Reliance and Essar had garnered about 16 Percent market share in diesel after the sector was opened up in 2002. But they shut most of their outlets once government control on fuels returned since they could not compete with state retailers selling fuels cheaper due to subsidy. Hundreds of crores of investment got locked up and lakhs of jobs were lost as a result.

Source-On Request