International ratings agency Fitch Tuesday said that deregulation of diesel prices will have a positive effect on the country's three oil marketing companies (OMCs) that are the principal retailers of petroleum products in India.
"The decision is also likely to lead to more private firms entering the diesel market in the medium term, resulting in greater competition," Fitch was quoted in a statement.
According to the ratings agency, the decision to deregulate diesel prices is well-timed in light of the recent decline in international energy prices.
The ratings agency said that the implementation of 'these politically sensitive' reforms demonstrates that the government continues to roll out structural reforms gradually, and suggests that more far-reaching structural reforms may be in the pipeline.
"The other beneficiaries are likely to be upstream oil companies such as Oil and Natural Gas and Oil India, which also bore a large part of the subsidy burden," Fitch said.
The upstream oil companies used to offer crude oil at $56 per barrel discount to the national OMCs- this made the discount burden more challenging as the the international crude oil prices have fallen to around $85 per barrel.
Fitch added, that private firms such as Reliance Industries and Essar Oil are likely to restart idled diesel retail operations, and should ultimately become more significant players.
"By allowing diesel to be marketed profitably, the sector will once again be attractive for private companies that had left when price restrictions were put in place," the statement added.
