The recent move towards dynamic fuel pricing in India is another bold step being taken by the government towards a streamlined, integrated energy sector, writes TechSci Research
After much discussion and some resistance, dynamic fuel pricing in Indian cities is finally set to take off.In New Delhi, for example, effective price per litre for petrol on Wednesday, August 23 works out to INR 68.73, up from INR 68.67 on Tuesday. With the inculcation of these new rules concerning daily price revision, India has joined the band of select nations like the US and Australia where petrol rates are changed daily. TechSci shares some insights.
Effect of Dynamic Fuel Pricing on the Indian Economy
TechSci Research experts have mulled over the various advantages and disadvantages of the issue and presented to us the major ways in which dynamic fuel pricing will affect the country. Here are the key takeaways.
First, with dynamic fuel pricing, these oil companies would be able to forecast their net revenues well in advance as compared to the current scenario where said companies includes peculation on their balance sheet and quarterly reports. TechSci Research experts suggest that profits revenues will go up by 5%-7%, as companies will no longer be forced to depend on fluctuating currency conversion rates to determine their profits.
Given that oil prices betray a certain dynamism in the global markets, introduction of dynamic fuel pricing will remove the speculative aspect of determining long and short run price prediction and forecasting which will make life a lot easier for oil companies in India.
Second is the effect on consumers. Experts suggest that influence on consumers due to dynamic fuel pricing would be negligible. Given that day to day changes will be only pennies to the dollar consumers will not be affected much. However, this assumption is based on the fact that oil prices would not be volatile.
A steep drop or rise in oil prices would obviously be extremely detrimental for both oil companies and consumers and so it is essential that for dynamic fuel pricing to succeed among consumers, oil prices must show a modicum of stability. Given that this stability has been somewhat lacking over the past few years, it will be interesting to see how major stakeholders will deal with future demand and supply shocks.
Dynamic Fuel Pricing: Effect on Indian Oil Giants
TechSci experts believe that the dynamic fuel pricing issue cannot be simply viewed as a stand alone issue. It must be clubbed with other factors that also play a key role in what seems to be an evolving energy strategy for the country.
In a recently published article titled “ONGC-HPCL: Will Merger Wake Up Sleeping Oil Giant India?” TechSci Research outlined the recent trend of consolidation of oil companies taking place in the country. Dynamic fuel pricing, experts suggest, could fit right into this narrative.
TechSci Research back then argued that the creation of a merged oil entity would lead to better economies of scale,with increasing margins and a higher risk bearing propensity in addition to improving efficiencies. Dynamic fuel pricing will simply give these companies more leeway in terms of their finances.
More consolidations are expected in the energy sector, and while it remains to be seen how things pan out, it cannot be argued that India is taking decisive steps to try and unshackle the sector with bold, if somewhat risky moves. Whether the introduction of dynamic fuel pricing et al does provide a decisive boost to the Indian economy, only time will tell.
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