Diesel prices will soon be market linked: Mayaram

The Finance Ministry on Thursday expressed hope that domestic diesel prices will soon become market linked in the backdrop of softening global crude oil rates.

"The decision of the government which stands today is reduction in diesel subsidy by 50 paise (per month) which means increase in prices by 50 paise. So, logical conclusion is that as and when that is over, it will become market driven," Economic Affairs Secretary Arvind Mayaram said.

He further said that with the softening of crude prices in the international market, it would be possible for the government to move to market-driven prices of diesel, sooner than later.

"We have been lucky on oil and if you see the oil prices which have been softening, I think that we will be able to exit the diesel subsidy soon enough and diesel is going to become market priced," he said.

Brent crude oil prices declined to 14-month low of $102 a barrel today. Mayaram said there is an emphasis on the Direct Benefit Transfer (DBT), and hoped that in the next 2-3 years, the subsidy burden on the government will come down significantly.

Currently, the retail selling price of diesel is below international market price. Government compensates retailers for the losses some three to six months later. The losses of retailers on sale of diesel stood at Rs 1.78 per litre as on August 19.

Diesel prices are raised every month by up to 50 paise per litre to trim the losses. Rates have cumulatively risen by Rs 11.24 per litre in 18 instalments since January 2013 when the previous UPA government had decided on small monthly hikes.

Government had in January 2013 decided to raise diesel prices in small doses of 40-50 paise per litre every month till the losses -- which are made good through government subsidy -- are completely eliminated.

Petrol price was deregulated in June 2010 and has moved more or less in tandem with the cost.