Answer:

Administered Price Mechanism (APM) for fuels denotes that the price of fuel was set by the dictates of government rather than the market forces, that is, the prices were either administered or subsidized.

Dismantling of APM is deemed to be beneficial for Indian economy because:

♤ It will lead to efficient allocation of a scarce resource which was being over-used by the consumers due to lower prices.

♤ The burden on the state fiscal accounts will also be reduced as higher imports of crude oil at higher prices due to increased demand need not be subsidised by state.

♤ The idea of providing returns on cost-plus formula to OMCs was not encouraging to encourage efficiency in production because it was not at all profit motivated.

Under APM, state-run fuel retailers used to revise rates on the 1st and 16th of every month, based on average international price in the preceding fortnight and the currency exchange rate. In dynamic fuel pricing, retail selling prices of petrol and diesel will be revised daily. It would link daily sales at all their petrol pumps with the international prices of crude oil.

Its benefits for OMCs

♤ Oil companies would be free to take independent decisions based on import parity and market forces in pricing of petroleum products rather than being governed by the dictates of the Government.

♤ Due to the reining in of speculative market forces, the impact of increasing/decreasing prices on the working capital of companies and dealers would be minimised.

♤ It ensures that OMCs do not lose out for an entire fortnight in the event of a sharp rise in crude prices as they will be able to immediately pass on the price hike to the customers.