Petrol prices hiked for the 7th time since June 2013

Petrol prices in India were hiked yet again last Friday, on account of the depreciating Indian rupee and rising international crude oil prices. The new prices will reflect a minimum hike of 1.63 rupees per liter from the midnight of September 13th, the seventh such hike since June 2013. Petrol prices have been deregulated since June 2010 although the Indian government does have a say in when the state owned oil marketing companies such as Indian Oil Corporation (IOC), Bharat Petroleum and Hindustan Petroleum hike prices, and by what quantum.  

The latest price hike in petrol came amid expectations that the oil marketing companies (OMC) would actually cut prices during their fortnightly price revision meetings as the Indian rupee has recouped some losses against the US dollar. The appreciation in the Indian rupee will be factored in during the next fortnight's price revision meeting, and a price cut might happen if the Indian rupee holds on to its gains against the US dollar. Apart from the 1.63 rupee/liter hike effected by OMCs, the addition of local taxes means that the consumer has to contend with an actual hike of about 2 rupees/liter.

Since June 1st, 2013, petrol prices have gone up by 10.8 rupees/liter at the OMC level, and by 13.06 rupees/liter at the retail level in Delhi. The total price hike/liter in other metros is even higher. Currently, a liter of petrol costs 76.06 (previously 74.10) rupees in Delhi, 83.62 rupees in Kolkata (previously 81.57), 83.63 rupees in Mumbai (previously 81.57) and 79.55 rupees in Chennai (previously 77.48). Petrol prices in Mumbai and Kolkata are among the highest in the country, a position that until recently belonged to Bangalore. The reduction in state taxes on petrol sold in Bangalore has meant that the fuel is priced at 83.35 rupees/liter. 

Diesel prices are also expected to go up by about 3-5 rupees in the coming weeks as the under-recoveries on diesel is causing a significant strain on India's fiscal deficit. Unlike petrol, diesel is not deregulated and continues to be heavily subsidized by the Indian government. The state-owned OMCs are said to be losing about 12 rupees per liter of diesel sold in India. This loss is largely made good by the Indian government's fuel subsidies to the state-owned oil companies, causing a severe strain on the exchequer of the country. The stratospheric rise in fuel prices has led to car demand petering off in India.

While many prospective petrol car buyers are shifting to diesel engined cars, overall car demand is in a major slump. Diesel price deregulation, a measure that's touted to boost the economy by eliminating a major chunk of the Indian government's subsidy burden, could lead to diesel prices increasing further. Such hikes may not augur well for car sales in India. The contrarian view on this subject suggests that a fast growing economy, with an 8 % GDP growth figure can create enough wealth so as to give car buyers financial muscle to tide over diesel price deregulation. Presently, the yearly GDP growth figure is hovering around the 5 % mark.