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mains Test Series 2018
Q. Revision of oil prices on daily basis: Analyse the state-owned oil company’s decision to revise the oil prices on daily basis.
Apr 14, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently the country's state-run oil companies have decided to revise the petrol and diesel prices on daily basis from May 1 of this year. The process would start initially in five cities on pilot basis across the country ahead of a nationwide rollout of the scheme. The daily revision of oil prices will be implemented in Puducherry, Vizag, Udaipur, Jamshedpur and Chandigarh.

Analysis-

  • Presently, the three state-run oil companies, Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp, revise fuel prices every fortnight to reflect volatility in the currency and global oil markets.
  • The proposed pilot project of revision oil prices on daily basis seen as an effort to reform the pricing mechanism, because it will reset the oil prices daily in tandem with global oil price movements.
  • The impact of this move still unknown, but if one considers the latest price change effected by oil companies in recent times, the case for a daily price reset makes eminent sense.
  • As Indian economy is integrated with the global financial and commodity markets, hence keeping fuel prices unchanged for as much as a fortnight, without aligning prices on daily basis at par with global movements will affect the economy in long term. 
  • Aligning and spreading out the degree of change in oil prices on daily basis will lessen the impact on consumers, on both the upside and the downside. Marginal changes in the daily price of fuel will not make or break consumer confidence or fuel inflationary expectations.
  • The revision of oil prices on daily basis will make a more gradual ascent or descent in fuel prices, rather than abrupt shifts over randomly selected intervals. It makes good sense, given how closely our fiscal outlook is tied to oil price movements.

Conclusion-

The countries state-owned oil company’s decision to revise the oil prices on daily basis in select five cities on pilot basis is seen as first step towards a long due oil sector reforms.  As Indian economy is aligned with global economy and India is dependent on oil imports, hence it makes sense to align the rates on daily basis. A gradual change in prices does not affect the consumers that much in comparison to random changes.  In this background, the decision of oil companies is welcome move.


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