Assessing

Diesel accounted for 39.55% out of total petroleum products consumption in India in 2012-13 (Energy Statistics 2014). This makes diesel an important petroleum product whose consumption and pricing has major macro economic implications. The study “Assessing the Impacts of Diesel subsidy reform since January 2013” by IRADe critically evaluates how the diesel price reforms impacted the important stake holders in the economy. The annual diesel consumption shows a negative growth rate for the first time in last five decades in 2013-14. As per IRADe findings, decontrol of diesel prices resulted in overall increase in WPI (Wholesale Price Index) inflation but it has turned out to be temporary in nature. The elasticity of overall wholesale price inflation with respect to diesel price change is quite lower. The wholesale price of food is largely influenced by rainfall, seasonal impacts and market forces and diesel price change has a very small impact on it. IRADe’s Analysis shows that the persistent CPI inflation is because of hike in food prices and not because of diesel prices. In the report we conclude that when CPI inflation is controlled, the RBI is likely to respond by reducing the real interest rate which will stimulate economic growth and reap the benefits of diesel reforms.