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Petrol price up Rs 7-plus in sharpest rise ever

Ministerial group to take a call on raising diesel, kerosene and LPG prices

BS Reporter  |  New Delhi 

A day after the Parliament session ended, government-owned oil marketers raised the price of petrol by a record Rs 6.28 a litre. After the inclusion of local taxes, the increase amounts to almost 12 per cent or Rs 7.54 a litre in Delhi. The new price, effective from midnight tonight, will be Rs 73.18 a litre in the capital. The increase was necessitated by their rising under-recoveries and a weakening rupee, the companies said. Prior to this, the steepest hike in absolute terms was done last May, when the price rose by Rs 5.

The price woes may not end here. A hike for diesel, kerosene and domestic LPG would be decided on by an empowered group of ministers headed by Finance Minister Pranab Mukherjee in its next meeting, the date of which has not been decided yet.

The announcement created a political furore, with the United Progressive Alliance’s allies Trinamool Congress and DMK alleging the increase was done without consultations. Opposition parties like the BJP and Left parties condemned the move.

While a petrol price increase does not impact inflation significantly, with 1.09 per cent weight in the wholesale price index (WPI), political resentment could make the task of effecting a rise in diesel, kerosene and LPG prices difficult. Diesel has a high weight of 4.67 per cent in the WPI.

Economists justified the hike but said it could have been staggered. “A petrol price increase will have an impact of 10-15 basis points. The government should work out a strategy to have small increases regularly,” said Madan Sabnavis, chief economist at CARE Ratings.

Industry chamber Ficci welcomed the hike and pitched for market-linked prices of diesel, domestic LPG and kerosene. Automobile manufactures said the move would further impact the demand for petrol cars.

Announcing the steepest increase, the largest oil marketer, IndianOil, said a rise of Rs 1.50 a litre more would be required to cover losses of Rs 1,056 crore incurred in the current fiscal.

This is the first price hike after a gap of more than six months. Though petrol stands decontrolled since June 2010, companies have been unable to pass on the required increases on a regular basis due to political pressure. With this increase, petrol is now costlier by over 52 per cent since its decontrol.

The non-revision of prices since November 4 last year had caused the three government companies, IndianOil, Bharat Petroleum and Hindustan Petroleum, losses of Rs 4,651 crore.

Their demand for reimbursement of the petrol losses had been turned down by the finance ministry recently.

FUEL ON FIRE
City Price on 
June 26, 10 *
Price on 
24-May-12
% chg
Delhi 51.43 73.18 42.29
Mumbai 55.88 78.57 40.6
Kolkata 55.32 77.88 40.78
Chennai 55.92 77.53 38.64
*Date of decontrol      Prices in Rs /litre       Source: IndianOil
Petrol price rose 27.62 per cent in Delhi between June 26, 2010 (the date of decontrol) and December 1, 2011 through 12 changes, of which 10 were increases and two were cuts. However, Wednesday’s announcement amounts to a rise of 11.48 per cent in one go. 

The companies continue to lose heavily on three controlled products, diesel, kerosene and domestic LPG. The last price revision in these three products was done in June last year. Since then, the revenue loss on diesel has jumped from Rs 6.13 to Rs 13.64 a litre, on kerosene from Rs 24.16 to Rs 31.41 a litre and on LPG from Rs 331.13 to Rs 479 a cylinder.

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First Published: Thu, May 24 2012. 00:34 IST
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