The decision to decontrol petrol prices was a bold policy reform by the government. It substantially cut down the huge oil subsidy burden, helping oil companies reduce losses. The government has also promised to decontrol diesel prices.
Now, with global crude oil prices firming up once again at over $90 a barrel, PSU oil retailers are expected to start accumulating losses largely on account of diesel, which stacks up to 40 per cent of their sales. Should the government then bite the bullet and decontrol diesel prices as well? It'll be a political hot potato given the high inflation.
It will be prudent for the government to wait till crude prices cool off to push through the reform. However, subsidies on LPG and kerosene have to continue as these fuels are used by the lower middle class and the poor. As the Kirit Parikh Committee suggested, these are socially desirable subsidies.