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imports are allowed it would have an impact on petroleum prices in various parts of the country.

Existing oil companies (along with some of the government ministries) will continue to have a say on how pricing of these petro products should be.

So till then even as more players, both domestic and international, come in, the prices of diesel and petrol will not dip substantially. A pure free market scenario could arrive, but in India it is likely to take more time.

Then what does all this talk of deregulation for the oil industry imply?

We have seen that steps have been taken at the pricing level. The oil industry has witnessed deregulation in recent years through private players who have been allowed to market LPG products.

The big thrust will be at the retail level with the expected entry of large players like the Reliance group (with Reliance Petroleum having recently merged with Reliance) and the Essar group, through Essar Oil.

They will aggressively compete with public sector undertakings (PSUs) at the retail and marketing level and the overall distribution network map for petrol and diesel sales is expected to alter dramatically.

From a management perspective, the running of oil companies is also expected to change specially with the government announcing that it will divest its stake in petroleum giants Bharat Petroleum and Hindustan Petroleum.

Most of the leading private and public players are likely to bid for these as there are obvious advantages to gain in terms of existing network and distribution.

Recommendations include -

Free market pricing of Petrol and Diesel. The Kirit Parikh report suggests an additional levy of Rs. 80,000 on a diesel vehicle, citing that the higher excise must offset benefits vis-a-vis petrol vehicles. The report submits there is no need to subsidize users of diesel cars and SUVs, vehicles which are used for personal purposes.

Allowing periodic price increases for cooking gas (LPG) and Kerosene, based on performance of the agricultural sector and the rate of expansion of rural electrification. This will help rural India gradually adjust to the price hikes. Kerosene is used for lighting purposes in rural areas, so expanding rural electrification will reduce dependence on kerosene for lighting purposes

Excluding GAIL - the gas transmission behemoth from the under recovery subsidy burden.

Impact of APM on the Indian Economy

All in all, the ever expanding petroleum sector subsidies are proving to be a real drain on the Finances of the Indian government.

Oil subsidies are currently treated as an ''off balance sheet item''.

Implementation of these recommendations will thus present a ''truer'' picture of India's fiscal deficit.

To give you an idea of just how large the oil subsidy has been: -

From 2003-04 to 2008-09 total under recoveries amounted to Rs. 2,99,222 crores.

The market capitalization of India's largest private sector Giant - Reliance Industries is Rs. 3,23,235 crores!!!

The market capitalisation of the Benchmark BSE SENSEX index is Rs. 24,81,009 crores.

TAXATION

At present there is zero custom duty on crude oil, domestic LPG and PDS kerosene; 2.5