Losses on sale of diesel have dipped to a new low of Rs 2.80 per litre, strengthening the prospect of automatic deregulation of the fuel in next few months if the rupee continues to strengthen and monthly price hikes continue.
Continuing with the reform initiated by the previous UPA government of eliminating subsidy on the fuel through small doses of monthly price increases, the week-old BJP government yesterday allowed oil companies to raise rates by 50 paisa a litre.
The increase, the first under Narendra Modi-led government, together with appreciation in rupee value against the US dollar, helped trim losses on diesel sales to Rs 2.80 a litre from Rs 4.41 a litre last week, officials said.
The UPA government had in January, 2013 decided to raise diesel prices in small doses of 40-50 paisa a litre every month till the losses, which are made good through government subsidy, are completely eliminated.
Officials said the monthly increases had trimmed losses to less than Rs 3 a litre in May last year before a fall in rupee value led to losses on diesel sale widening to Rs 14.50 per litre in September, 2013.
Since then, monthly increases have continued and rupee has strengthened.
The losses have fallen rapidly since March as prospect of a stable and decisive government under Modi helping rupee gain against dollar. Losses on diesel stood at Rs 8.37 per litre in March.
Officials said the yesterday's decision to raise diesel came after new Oil Minister Dharmendra Pradhan held several rounds of discussions with state-owned oil firms to understand the reform.
Diesel prices had risen by a cumulative Rs 10.12 a litre in 16 instalments since January 2013.
Besides diesel, the oil firms are at present Rs 32.87 a litre on kerosene and Rs 432.50 on LPG.
At current rate, the three fuel retailers will incur a revenue loss of Rs 101,700 crore in current fiscal, down from Rs 140,000 crore in the previous year.