deregulation of oil prices

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OIL PRICEOIL PRICE

DEREGULATIONDEREGULATION

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INTRODUCTION

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DEREGULATION

Decontrolling or deregulating the petrol pricesmean that, the government will no longer besubsidizing petrol prices and the prices will bepurely linked to international crude prices. In thecase of diesel prices, though it will be onlypartially regulated- the reason being an attemptto avoid sudden spike in inflation.

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Overview

Government of India deregulated the prices of petroleum

products

Decision was taken on 25 June 2010 at EGOM (EmpoweredGroup of Ministers)

Decision was made on the basis of recommendation by Kirit

Parikh Committee

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The Big Rider

This is not the first attempt by the government to deregulate

petroleum product prices.

In April 2002, in an attempt to phase out subsidy on petroleum

products, the government dismantled the administered pricing

mechanism (APM) For pricing of Petrol an diesel

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ECONOMY BEFOREDEREGULATION

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APM and the oil pool account abolished in 2002.

Government starts providing subsidies in theannual budget for petroleum products.

OMC took control of adjusting prices.

Deficits started to grow from 2004.

By 2006 the deficit was $10 billion for petrol anddiesel.

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Between 2002 and 2005 the prices of petrol increased64% in India.

International prices increased over 140%.

The government issued government bonds to OMCs in

order to reduce under recoveries in 2005-06.

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Why high prices?

Very high central taxes.

State government charge even higher taxes.

75% of petroleum products are imported.

Inelastic demand for Oil.

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Composition of fuel prices.

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Subsidies.

Deficit at $17 billion in 2009 for commercial fuels.

Government bonds not helping.

Deregulation planned since 2002.

Due to low prices of fuels inflation also at a low.

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Inflation rates

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CAUSES

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Efficient global player.Allocation of funds for social welfare.

Competition and prise stabilization.

Development.

Increase investment.

Private players will re-emerge.Lessen the inflation burden.

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POSITIVE IMPACT OFDEREGULATION

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Private Players will

re-emerge

Improve Valuation ofOMC

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Will reduce Budget Deficit

Social Initiatives

Positive signals in the Global Market

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NEGATIVE IMPACT OFDEREGULATION

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Increase in Oil Prices Will the common man benefit ORlose from the petrol price

deregulation...???

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Inflation

Higher Interest Rate

Artificial Shortages

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CONCLUSION

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CONCLUSION

The overall de-regularising effect will be helpful to Government

Reduction in subsidies

However, absence of:

oThe timeline of the diesel price deregulation,

oThe frequency of change in petrol price, and

oPricing limit (band) for petrol price takes some sheen off the

decision.

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THANK YOUTHANK YOU

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Anuj Veer Singh 67Mrinal Kamath 77Purva Chhabra 87

Shreet Shah 98Zeeshan Esmail 108Anuj Prajapati 118

deregulation of oil prices

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