De-jargon: Deregulation

The recent decline in global oil prices, coupled with moderate growth in domestic prices over time, has changed the dynamics of diesel prices. Not only has the shortfall recovered from diesel sales been eliminated, but state-owned oil marketing companies are actually making profits.

The price of Brent crude oil in the international market has fallen from $115 per barrel in June to the current level of $92-93 per barrel. And according to the Petroleum Planning and Analysis Cell of the Government of India, on October 1, 2014, oil companies were making up $1.90 per litre from diesel sales. As a result, it is widely suggested that the government should use this opportunity to deregulate diesel prices. Currently, diesel prices are regulated and oil companies are not allowed to make price revisions. This has resulted in huge shortages in the past. For example, in the fiscal year 2013-14, the total shortfall from diesel sales was Rs 62,837 crore.

Generally speaking, deregulation means reducing or eliminating government control over a sector or sectors of the economy.

The basic idea of ​​deregulation is to provide more space for market forces to increase competition and efficiency. For example, a lot of deregulation took place when the Indian economy was opened up in 1991. As the government allowed market forces to play a bigger role in the economy, economic activity improved and India joined the ranks of fast-growing countries, although the pace has suffered in recent times due to various factors. Although the government has opened up various sectors to domestic and foreign participation over time, it has not completely surrendered control; restrictions still exist and prices are not always set by market forces. An example is the oil sector. As a result, the sector is dominated by state-owned enterprises. As in the case of petrol, if diesel prices are freed from government control, there is a chance that private enterprises will also find the sector attractive, leading to competition and better quality.

Is deregulation always a good idea?

Not necessarily. For example, it is widely argued that the lack of regulation, especially in the financial sector, created the conditions that led to the global financial crisis of 2008. Therefore, it is important to have the right amount of regulation. Too much regulation or government interference can affect economic activity, but too little can go to extremes and harm consumer interests, for example. However, it is better if prices are discovered by market forces, because government intervention can lead to distortions.