According to new estimates, Oil marketing companies (OMCs) will be able to reduce their losses by as much as Rs. 20,000 crore due to the recent hike in the price of diesel in the country.

The reduced level of losses will help reduce the subsidy burden on upstream oil firms as well as the Indian government that compensate for selling fuel at a blow cost. Experts believe that the hike will help in reducing the burden on the government and this will help reduce deficit.

In the previous year, the OMCs in the country posted a combined loss of Rs140,000 crore due to selling of diesel, LPG and kerosene at prices below market. The subsidy burden for the year was expected to be Rs187,127 crore.

Upstream companies will also gain from the hike in diesel prices. During the previous year ONGC, Oil India and Gail shared 80 per cent, 13 per cent and 7 per cent of the under recoveries for selling fuel in the country, respectively. Indian Oil, Bharat Petroleum and Hindustan Petroleum incur losses by selling fuel below its cost.

According to estimates, the OMCs have so far reported under-recoveries of Rs29,042 crore on sale of diesel during the April-June period.