Diesel prices, for the first time in over five years, should have been cut by 35 paisa on falling global rates but oil companies have decided to hold on to the rates pending a government decision on deregulation.
Under-recovery or the difference between retail price and its imported cost on diesel was 8 paisa per litre in the first half of September.
The under-recovery in the second half has turned into over-recovery or profit of 35 paisa per litre.
"Naturally, when there is an over-recovery or profit, rates should have been cut but oil companies are holding the price line as they await a clear decision from the government on diesel price deregulation," an official said.
This would have been first reduction in diesel rates in over five years.
Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86.
Since then rates have only increased as international oil prices climbed.
Since January 2013, diesel prices have been raised by up to 50 paisa a litre every month to eliminate under-recoveries.
The official said Oil Minister Dharmendra Pradhan is in Vietnam on an official tour and a deregulation or freeing of the fuel pricing from government control will be discussed upon his return.
Deregulation would give oil companies powers to change rates in tandem with cost like they do in case of petrol since June 2010.
Like diesel, state-owned oil companies have also not changed petrol rates which warranted a 54 paisa increase as its benchmark gasoline rates had firmed up in international market.
"There are elections in Maharasthra and Haryana and an increase now would not have been a very popular decision," the official said.
This is perhaps the first time that retail prices in India are higher than global rates.
A government statement on fortnightly under-recoveries stated that diesel under-recovery has been wiped out and there is over-recovery of Rs 0.35 per litre with effect from September 16.
Oil companies calculate the desired retail selling price of petrol and diesel on 1st and 16th of every month based on average international benchmark price and rupee-dollar
Average benchmark gasoline rates have increased from $109.25 per barrel in second half of August to $111.04 in September.
Exchange rate has averaged Rs 60.54 to a US dollar in September as compared to Rs 60.73 to a dollar in second half of August.
The combined effect of this should have resulted in an increase of 54 paisa a litre in price of petrol, but state-owned oil companies are holding on to the rates, the official said.
The next revision in diesel and petrol prices is due at the month end.
Once the Cabinet approves de-regulation or freeing of diesel prices, oil companies can change rates in tandem with cost like they have been doing in case of petrol since June 2012.
The National Democratic Alliance government has continued with the previous United Progressive Alliance regime's policy of raising diesel rates by up to 50 paise a litre every month to bridge the gap between cost and retail prices.
Originally, petrol and diesel prices were deregulated in April 2002 when NDA government was in power. Administered pricing regime, however, made a back-door entry towards the end of NDA regime in the first quarter of 2004 when crude prices started inching up.
Congress-led UPA controlled rates as international oil prices went through the roof. In June 2010, however, it freed petrol price from its control and rates have since them moved more or less in tandem with cost.
In January 2013, the UPA decided to deregulate diesel prices in stages through monthly 50 paise a litre increases.
Rates were last raised on August 31 after which losses have dipped.
Rates have cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013.
