Oil companies on Thursday increased petrol prices by Rs 3.14 to Rs 3.32 a litre with effect from midnight, the second biggest hike in more than a year. The hike, companies say, has been done to pass on the impact of a depreciating rupee which has resulted in a higher import cost. The last hike was effected on May 15, when companies raised prices by Rs 5 a litre even though they were losing Rs 10 a litre.
The increase comes after inflation climbed to a 13-month high of 9.78 per cent in August. This is the ninth increase since petrol prices were decontrolled in June 2010. Petrol prices have moved up more than 39 per cent since then. During the same period, diesel prices, which are still regulated, have been increased just twice, by 8.37 per cent.
Currently, companies are losing a little more than Rs 6 on a litre of diesel, Rs 23.25 on a litre of kerosene and Rs 267 on a domestic LPG cylinder. Though petrol was deregulated in line with the Kirit Parikh committee report, the government is yet to take a call on its suggestion for deregulation of diesel. An empowered group of ministers scheduled to meet tomorrow is deliberating on how to better target domestic LPG subsidy, often misused for commercial purposes.
“Due to a combination of unprecedented factors, Indian Oil has been constrained to revise the price of petrol... If the prices had not been revised, the daily loss to oil marketing companies, or OMCs, (Indian Oil, Bharat Petroleum and Hindustan Petroleum) would have been Rs 15 crore,” said a statement issued by biggest oil marketer Indian Oil. Higher global prices and a weaker rupee have resulted in under-recoveries rising to Rs 2.61 a litre from Rs 0.41 a litre on September 1.
The rupee has depreciated nearly eight per cent in the past few days. Against an average of Rs 44.42 in July and Rs 45.32 in August against the dollar, the rupee has averaged Rs 46.68 so far in September and closed at Rs 47.56 on Thursday.
The price of the Indian basket of crude oil, which averaged $107.24 a barrel in the last fortnight of August, has averaged well above $110.68 in the current fortnight, up more than three per cent.
Though widely expected, the news depressed the automobile industry. Pawan Goenka, president of industry body SIAM, said it could badly affect festive season sales. The industry was facing a slowdown in sales over the past couple of months, he said, adding it would be a double whammy if the Reserve Bank of India increased repo rates on Friday.
Industry chamber CII’s director general Chandrajit Banerjee said, “The hike was necessary for controlling the under-recoveries of OMCs.
Though it may add to inflation, the alternative scenario would mean a further increase in fuel subsidy. Given that the government has decided to decontrol petrol prices, it needs to make this adjustment from time to time.”
Even though petrol is decontrolled, public sector OMCs, Indian Oil, Hindustan Petroleum and Bharat Petroleum, did not pass on the increase in tune with market changes. Even though they claimed to be free to price petrol, the increase was often staggered and guided by the political environment. From January onwards, OMCs were forced to put a price hike on hold as five states were to face assembly polls.
Meanwhile, OMCs have also raised prices of aviation turbine fuel by 2.53 per cent, or Rs 1,429 per kilolitre, to Rs 57,689 in Delhi, with effect from tomorrow. The increase has been on account of a sharp depreciation in rupee against the dollar and firm global prices.
