Petrol, diesel pricing: Here is a way out for beleaguered Indian fuel retailers | The Financial Express

In an earnest effort to ‘clean up’ the markets and wean them off subsidies, the government, on June 16, rolled out a dynamic pricing mechanism for petrol and diesel fuel prices across India.

In an earnest effort to ‘clean up’ the markets and wean them off subsidies, the government, on June 16, rolled out a dynamic pricing mechanism for petrol and diesel fuel prices across India. This means that the prices of these transport fuels are changed daily by the oil marketing companies (OMCs) based on the movement of international crude oil prices. Prior to this, the revision in fuel prices happened on a fortnightly basis. Now, daily pricing did smoothen out price fluctuations, thereby benefiting OMCs and the consumers. However, the story for the dealers has not been as pretty. According to recent reports quoting the Association of Fuel Retailers, retailers lost as much as Rs 400 crore in the first two weeks of the roll-out of the dynamic pricing.

With a fixed margin per unit of sales, retailing of motor fuel and LPG had traditionally been an attractive business. With fixed margins and fortnightly change in fuel prices as in the previous regime, the retailers managed their inventories based on expected fortnightly prices. But with a business requirement of stocking for a much longer period than a day, daily fuel prices left the retailers worried about their fixed margins especially in the current scenario of declining fuel prices, i.e. to sell high priced inventories at low prices. In the current scenario, daily pricing has restricted the price delta available to dealers to take a call on stocking up or delaying purchases that has the potential to introduce inventory uncertainties.

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Petrol, diesel pricing: Here is a way out for beleaguered Indian fuel retailers – The Financial Express.