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Government yesterday took a very bold decision by deregulating the price of petroleum products as they wanted the prices to be more of market driven. Extract of this decision is that the oil marketing companies will decide the price at which the products are to be made available in the market and government will not have any sort of control on the prices. Till yesterday Government use to decide and fix the prices and the oil marketing companies use to sell the products at the defined prices.

Decision had an obvious effect on pricing of petroleum products. The prices jacked up by 8-10% from Friday midnight itself and this became a hot topic discussed across the media. People started feeling the heat and consequences of the increased prices and expressed there views and opinion through whatever means they can. It’s buzzing news across the city people discussing inflation and recent price hike of petro products.

With inflation running in double digit figures people are already finding it difficult to meet their ends; and with a recent hike in petro products things are going to be more challenging. In days to come we will find every thing going dearer; a tough struggle seems to be waiting because there seems to be no respite/chances of roll back of the decision.

But this seems to be good news for many? Puzzled…… wait! I will add to the story.

1) Raining for private players: With government having control on the prices many private players who ventured into the retail market couldn’t sustain the competition from state run oil marketing companies. State run oil companies were selling products at a cheaper rate because they were having an advantage of government subsidiary and this was not the case with private players; as a result of this private players withdraw themselves from the retail market. Now the deregulated prices will help those private players to enter the retail market, because they can see there bottom line growing multifold. Profit margin of private players will increase and so the resulting taxes which the government will collect

2) Foreign Participation: Foreign players who are into oil exploration, refining and retail will find the Indian market lucrative and will venture the Indian market. The obvious benefit which they are having is high end technology which can increase there profit, have the latest technology that allows them to extract more high-value products from inferior crude varieties that come cheaper and maximize returns on refining. Again tax Collection on the profit margin will increase which will add to government’s kitty.

3) Disinvestment: Since long Government wanted to dilute it’s holding in oil marketing companies and for which the new guidelines are already in place. But due to regulated prices profit margin of oil marketing companies was low and there FPO might have got a subdued response in this scenario. But with price getting deregulated; profit margin of those companies will increase multiple fold and because of which the FPO’s are bound to receive excellent response from the market.

This is all about a segment that is getting benefited. The only benefit that we can expect is that if the private players use improved better technology and practices and if the prices of crude falls globally then we can expect a cheaper petro products, otherwise life seems to be difficult with the current inflation and petro price hike.