Petrol, diesel prices hit all time high, but no respite in the offing

Petrol price has hit a record high of Rs 76.57 per litre in Delhi, beating the previous all time high of Rs 76.06 of September 2013 after oil marketing companies raised prices by 33 paise on Monday. Diesel prices were also raised by 25 paise on Monday at Rs 67.82 per litre in Delhi as per daily price revision method introduced last year in June.

Prices of diesel have been at an all time high since March 31, as first reported by Business Today.

Sunday's high follows seven consecutive days of price increases after a 19 day freeze on oil prices between April 24 and May 13 in the run-up to the assembly elections in Karnataka.

Domestic prices of petrol and diesel have gone up as high crude oil prices in the international markets, benchmark crude oil price for the Indian basket hit $ 76.43 per barrel last week the highest since 2014, and a weak rupee against dollar, which makes imports expensive, have forced the hands of the three state oil marketing companies.

The Indian currency at Rs 67.53 per dollar has fallen by 6 per cent against the greenback in 2018 so far. It is one of the worst performing currencies this year across the world. India imports nearly 80 per cent of its crude oil requirement every year.  

There seems to be little relief in sight for consumers as crude oil prices are expected to remain high in the short term while rupee is slated to weaken further against the dollar. Some experts do not rule out the rupee to weaken further to a new low of even Rs 70 per dollar.

Global oil prices have gone up as the Organization of the Petroleum Exporting Countries (OPEC) that controls 44 per cent of world's oil production and 73 per cent of its proven reserves, and its allies, including Russia, started to withhold output in January 2017 to reduce excessive global stockpiles that had depressed oil prices since 2014.

Further,  US President Donald Trump's recent decision to re-impose sanctions on Iran has also exacerbated matters. Brent is reportedly up by more than 4 per cent since he announced abandoning the landmark UN-backed deal.

Not everything can, however, be blamed on forces outside the country. The government's own policy on fuel, which has been used to generate more revenue in the last four years, is equally to blame for the extraordinarily high price that Indian consumers pay for every litre of petrol and diesel.

Despite the recent surge, crude prices are still well off the highs of September 2013, when retail prices were at all time highs. At that time, the price of the Indian basket of crude oil had shot up to $ 110 per barrel, almost 44 per cent more than what it is today. The invisible factor between the two is taxes.

Prices of petrol and diesel in India have witnessed a steady increase in the past four years as the government has hiked excise duties on fuels a dozen times in this period. As a result, the Narendra Modi-led NDA government gets Rs 10 per litre excise duty more on petrol than what the Mammohan Singh-led UPA government got in 2014.

For diesel, the government gets almost Rs 11 per litre more than the previous government. Excise duty on petrol has gone up by 105.49 per cent (including the only time when duties were cut by Rs 2 per litre last October in the run-up to the assembly elections in Gujarat), while on diesel it has shot up by over 240 per cent during the time.

It is not that the central government alone which has reaped the benefit of lower crude prices. Even the state government, led by Arvind Kejriwal in the case of Delhi, which gets its share through VAT has seen its kitty bulge by over 31 per cent. Even the petrol pump owners have seen their commission go up by 80 per cent on petrol and 111 per cent on diesel between April 2014 and March 2018.

The government has repeatedly ruled out any cut in duties on oil as adverse macro economic situation in the country means any shortfall in revenues from oil as a result of a cut in duties may not be compensated from elsewhere.

Already, India's oil import bill, which had come down between 2014 and 2017,  may go up in the range of $20-50 billion in fiscal year 2019 (FY19). Last fiscal the country spent $88 billion on oil imports. At the start of this fiscal, the petroleum and natural gas ministry had estimated a 20 per cent increase in the import bill to $ 105 billion for fiscal 2019 assuming average crude oil price for the Indian basket at $ 65 per barrel.

The higher import bill threatens India's current account deficit, a barometer to measure a country's imports and exports.

"Our commodities team expects oil prices to continue to rise over the course of this summer, before moderating slightly at the end of the year. We recently increased our 2018-19 current account deficit (CAD) forecast to 2.4 percent of GDP (from 2.1 percent of GDP earlier)," Goldman Sachs said in a research note.

India's CAD widened to 2 per cent or $13.5 billion in the October-December quarter of 2017, up from 1.4 per cent, or $8 billion, in the corresponding period a year ago.

Petroleum and natural gas minister Dharmendra Pradhan has in the past made a case for oil to be included in the Goods and Services Tax but given the government's fiscal constraints that is also unlikely to happen.

All that a consumer can do for the time being, is grin and bear it.