Rating Agencies Hail India’s Decision To Deregulate Diesel Prices

International rating agencies have welcomed India’s decision to deregulate diesel prices. Moody’s has said that the decision to deregulate diesel prices and increase natural gas prices is “credit positive,” and it will reduce the burden of subsidy on the government.

Moody’s further said the steady outlook on India’s Baa3 sovereign rating is based on the likelihood of incremental credit positive policy changes in various areas in the coming months, and “our assumption that fuel subsidy reforms, introduced some years ago, will continue.”
Atsi Sheth, senior vice-president for sovereign risk group of the rating agency, said, "The decision to fully deregulate diesel prices signals fiscal discipline on the part of the sovereign, which we view as credit positive. Diesel price deregulation will reduce the subsidy burden for the government, although fiscal savings are likely to be limited."

Another rating firm, Fitch, said that the decision would have a positive effect on the fiscal health of the oil marketing companies.

“The expected direct impact of both the diesel reform and natural gas price rise on Fitch’s headline fiscal forecasts is limited but the fiscal balances will be more robust to future oil shocks, since both diesel and petrol prices are now determined by the market,” Fitch said.

“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,” it added.