The report has concluded that the impact on the oil pool on account of the diesel price hike would be positive as no further deficit would accrue, provided international prices remain at current levels.

Additionally, if oil prices decline over the remaining part of the year, the pool may receive inflows on account of implied surcharge on diesel (provided diesel prices are not revised downward).

The impact on freight rates for road transport is expected to be lower since the local transport operators may not have significant pricing flexibility following a capacity surplus in the market.

Moreover, the hike has further reduced the spread between domestic diesel and petrol prices. If this trend continues in the future, it could result in a slowdown in the shift in consumption pattern to diesel.

Its impact on economy is expectedto be minimal. Diesel has a weightage of only 2.35 per cent in WPI and hence, any possible rise in inflation would be around a percentage point. With the inflation level low at 3-4 per cent for the period April- September 99, the impact is not expected to be significant.The price hike in diesel was essential in order to control an increase in the oil pool deficit, which is estimated to have increased around Rs 30 billion in the period April- September 99 following parity price of diesel and domestic ex-storage point price of diesel.

The ex-refinery price of diesel is linked to the tariff adjusted import parity price. To this is added various surcharges such as the cost and freight surcharge and marketing margins to arrive at the ex- storage point price of diesel.