India freed diesel prices from government control Sunday while raising natural gas tariffs in the biggest-yet reform by Prime Minister Narendra Modi’s government, as it aims to boost the country’s economy and overhaul its energy sector.
The decision on diesel targets one of India’s costliest subsidies for one of the world’s dirtiest fuels.
Those subsidies – meant to help poor farmers using diesel-powered water pumps – inadvertently led the country to consume more than four times as much diesel as petrol, at large cost to the national budget. Almost half the country’s $23 billion spent on fuel subsidies last year went for diesel, according to the Delhi-based National Institute of Public Finance and Policy.
Meanwhile, India’s trade deficit has ballooned, reaching $14.3 billion in September, thanks to years of high international oil prices and a dependency on petroleum-based fuels like diesel, kerosene and gasoline for 22 percent of its entire energy consumption.
While India began tweaking diesel prices last year and rolling back some subsidies, the decision to fully deregulate diesel now appeared timed to a sudden drop in global oil prices last week, easing the burden on Indian consumers. Diesel prices on Sunday, the first day of the new fuel regime, were slightly lower than a day before in major Indian cities like New Delhi, Mumbai and Kolkata.
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