The private refiners had shut their pumps down when crude oil jumped to $147 a barrel and the state-owned refiners compensated for selling fuel below costs by the government.
'Private refiners are closely watching the government move. Free market pricing of petrol and diesel now is the most appropriate as it is around $70 to $80 a barrel,' industry sources said.
The first indication of their aggressive intent came from Essar group chairman Shashi Ruia who said Essar Oil planned to increase its petrol pumps to 2,000 in the next few months from 1,450.
Sources in Reliance Industries said they would re-enter the business if the government provided a level-playing field to the private players.
Terming it a landmark, Credit Analysis and Research (CARE) Limited has called for the immediate implementation of the Kirit Parikh Committee report that has recommended freeing of petrol and diesel prices and a steep hike in LPG and kerosene rates. This was the key to cutting subsidies, it said.
'The government needs to strike a balance between reducing the subsidy burden on the public sector companies, reducing the fiscal deficit and managing the current inflationary scenario, given that the economy is in the process of revival and is attempting to restore its buoyancy,' CARE said in a statement here.
'In the past, the entry of private players in the retail fuel market had resulted in an erosion of about 10 per cent in the market share of the public sector companies.'
Sources in the state-owned refiners said they would suffer immensely if the government just freed petrol and diesel prices, while leaving kerosene and LPG untouched.
'Private sector players would then have a field day because they can sell petrol and diesel at market-determined prices. Two-thirds of our losses are from cooking gas and kerosene,' the sources said.
The private firms had a market share of 14 per cent in 2006, but it had gradually reduced to a negligible sum following the spike in crude prices and absence of a compensating mechanism.
Reliance had to shut its retail operations down after global crude oil prices peaked. Essar and Shell India also closed some of their pumps, but when crude prices softened, they restarted some operations.
Arguing for free market pricing in its report, the Parikh committee said 'a market-determined pricing system for petrol and diesel can be sustained in the long run by providing level playing field and promoting competition among all players, public and private, in the oil and gas sector.'
The report said a spike in crude price from $70 a barrel to $120 a barrel would result in an increase of around Rs 160 per month for two wheeler users and less than Rs 1,000 per month for car owners.