The morning after is always rough if you are nursing a hangover. On Wednesday, hours after the celebratory dinner by the UPA, the hangover and the joke was on the common people.
Surreptitiously, the UPA which champions the cause of the common man,
moved the needle on petrol prices by an astounding Rs 7.54 per litre, thereby compelling the common man to park his petrol car in the garage and buy a cycle.
In a manner of speaking, this flawed policy measure to correct the imbalance in the under recoveries of the oil marketing companies was a travesty because it
widened the differential between diesel and petrol to a humungous Rs 33 in Delhi. With diesel and LPG prices remaining untouched, the government bit the bullet soon after Parliament was adjourned.
EXCLUSIVE: Is it time to hike diesel prices now?This back-breaking decision came even as global crude prices were at a seven-month low on Wednesday, hovering at $91 a barrel. But an embattled and softening rupee ensured this unexpected move by the government.
Emboldened by support from Mulayam Singh Yadav, who turned up at the UPA dinner, the government decided to test the waters on this tough measure once again.
MUST READ: Petrol price hike in the past 2 yearsThe last time around, it had to roll back prices after pullout threats by ally Mamata Banerjee.
On Wednesday,
the rupee sank to yet another all-time low of Rs 56 against the dollar as investors continued to fret about the yawning current account and fiscal deficits in India, which imports 80 per cent of its oil and heavily subsidises fuel products.
Union Finance Minister Pranab Mukherjee blamed global uncertainties and the rising oil import bill for the battering of the Indian currency. "The quantum of India's oil imports is substantial at around $160 billion to $170 billion annually," he said.
MUST READ: New petrol prices in your city Mukherjee's statement was clearly aimed at justifying the hike in the wake of the continued slide in rupee.
However, Hitendra Dave, global markets head at HSBC, said: "Just a petrol price hike is no help to the rupee/ fiscal deficit. Petrol is not part of the budget at all, so this has zero fiscal impact. This will only help oil marketing companies."
It is the prices of the heavily subsidised diesel, LPG and kerosene which need to be hiked.
"Let's see if they hike diesel (price) as well. That, I think, is the bullet to bite," Dave added.
Indian Oil head of finance P. K. Goel said the state-owned oil companies together lost roughly Rs 4,675 crore by selling petrol at below market prices since the last price revision in December.
And in what was clearly an inflationary decision, the move will result in adding 10 basis points to inflation in India.
"This step is just a flash in the pan and does not change the fiscal figures. So I don't see any positive impact on the rupee from this development," Indranil Pan, chief economist at Kotak Mahindra Bank, said. "Only if diesel, LPG and kerosene prices are increased will it have implications on the fiscal figures."
Oil sector was deregulated on June 1, 2010, but only prices of petrol are aligned to global crude prices. And given the number of elections lately, this unpalatable decision has always been left on the backburner.
This halfway house on oil sector deregulation has changed the dynamics of the car market. Both consumers and manufacturers are exploiting this loophole and more diesel cars are being turned out daily. The passenger car market thus has an equal representation of 50 per cent for both petrol and diesel.
From Wednesday midnight, the petrol cost in Delhi has gone up to Rs 73.14 per litre from the existing Rs 65.64 per litre. In Mumbai, it will now be sold at Rs 78.16 per litre while in Kolkata and Chennai it will cost Rs 77.53 per litre.
But the actual increase in prices will vary from state to state depending on the prevailing sales and other taxes. Since the rates of sales tax and value added tax (VAT) vary from 15 per cent to 33 per cent in the states, additional sales tax of Rs 0.94 to Rs 2.07 per litre will be added to the increased price.
This is the steepest hike in petrol price ever, the previous high being Rs 5 per litre.
The BJP slammed the decision as "atrocious". "The UPA government, on its third anniversary, has given the gift of fuel hike to the people," party spokesperson Prakash Javadekar said.
West Bengal chief minister Mamata Banerjee, who is a key ally of the government and a trenchant critic, said the price hike was "unjust and unilateral". "We have not been consulted before taking the decision. The rise in the prices of petrol would add to the burden on the people" she said.
Reacting to the steep hike in petrol prices, economists said the hike in petrol prices is unlikely to give a significant lift to the embattled rupee. But industry body Ficci welcomed the step and said the government should also deregulate the prices of other fuel products such as kerosene, diesel and cooking gas.
"This increase, welcome as it is, will only partially cover the under recoveries on account of kerosene (Rs 31 per litre), diesel (Rs 13.64 per litre) and Rs 479 for each cylinder of LPG. It is time that the government allows these prices also to move to their market-determined level," it said in a statement.
Sources said an Empowered Group of Ministers (EGoM) that is likely to meet on Friday to discuss the pricing of diesel and LPG may hike diesel prices by Rs 5 per litre.
Courtesy: Mail Today
Indian motorists crowd a fuel pump on Wednesday night after the government announced the petrol price hike. PHOTO: Associated Press 
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