New Delhi: India will increase petrol and diesel prices Global crude oil prices climb for the first time in more than four months following Russia’s invasion of Ukraine next week, three government officials said amid rising concerns about inflation.
Asia’s third-largest economy, which imports 80% of its oil needs, faces retail inflation that remains well above the central bank’s tolerance limit of 6% as companies cut crude prices by nearly 40% since November. % increase with the increase in prices. Other imported raw materials, economists said.
State-run oil companies, which control the domestic market, have not raised prices since November 4, aimed at helping the BJP in crucial state assembly elections, including in the most populous state of Uttar Pradesh.
“Oil companies will be free to raise prices in a phased manner after the election ends on March 7,” a senior government official with knowledge of internal discussions on oil prices told Reuters.
Opposition parties may push for reduction in fuel tax when Parliament meets from March 14.
Oil prices jumped after Russia invaded Ukraine on February 24, with Brent rising above $116 a barrel on Thursday, while supply disruptions hit global markets for wheat, soybeans, fertilizers and metals such as copper, steel and aluminum. Has affected prices – There are growing concerns about prices and the economic recovery. ,
Another official said that state oil companies have told the government that they need to increase the price of petrol and diesel by Rs 10-12 per litre.
A senior official of a state-run oil marketing company confirmed that they were facing difficulties, though he declined to give figures.
“We are incurring huge losses,” an oil marketing company official said.
Another senior government official with knowledge of the budget said the government is unlikely to cut fuel taxes to mitigate the blow, at least before the end of March 31 of the financial year, given its impact on state revenues. Was.
The central and state governments, which charge more than 100% tax on the basic price of petrol and diesel, cut factory gate duty and sales tax on fuel products in November following public outcry.
Referring to the cut in excise duty on petrol and diesel in November, the official privy to the budget said, “We may consider a proposal to cut fuel tax in April.”
The three officers declined to be identified as the discussions were confidential.
The finance and oil ministries declined to comment.
fear of rising inflation
Economists said a 10% increase in pump prices is likely to push retail inflation by 50-60 basis points through direct and second-order effects, prompting consumers to cut spending on durable and luxury products. can be inspired.
Retail inflation rose to a seven-month high of 6.01% year-on-year in January, crossing the upper limit of the Reserve Bank of India’s (RBI) tolerance band, driven by a rise in fuel and manufacturing prices.
Axis Bank Chief Economist Saugata Bhattacharya said rising retail fuel prices will have a direct impact on the prices of household goods and services depending on the energy intensity.
“However, given the wide-ranging uncertainties on the pace of growth, RBI’s Monetary Policy Committee (MPC) is unlikely to initiate monetary policy tightening immediately.”
Asia’s third-largest economy, which imports 80% of its oil needs, faces retail inflation that remains well above the central bank’s tolerance limit of 6% as companies cut crude prices by nearly 40% since November. % increase with the increase in prices. Other imported raw materials, economists said.
State-run oil companies, which control the domestic market, have not raised prices since November 4, aimed at helping the BJP in crucial state assembly elections, including in the most populous state of Uttar Pradesh.
“Oil companies will be free to raise prices in a phased manner after the election ends on March 7,” a senior government official with knowledge of internal discussions on oil prices told Reuters.
Opposition parties may push for reduction in fuel tax when Parliament meets from March 14.
Oil prices jumped after Russia invaded Ukraine on February 24, with Brent rising above $116 a barrel on Thursday, while supply disruptions hit global markets for wheat, soybeans, fertilizers and metals such as copper, steel and aluminum. Has affected prices – There are growing concerns about prices and the economic recovery. ,
Another official said that state oil companies have told the government that they need to increase the price of petrol and diesel by Rs 10-12 per litre.
A senior official of a state-run oil marketing company confirmed that they were facing difficulties, though he declined to give figures.
“We are incurring huge losses,” an oil marketing company official said.
Another senior government official with knowledge of the budget said the government is unlikely to cut fuel taxes to mitigate the blow, at least before the end of March 31 of the financial year, given its impact on state revenues. Was.
The central and state governments, which charge more than 100% tax on the basic price of petrol and diesel, cut factory gate duty and sales tax on fuel products in November following public outcry.
Referring to the cut in excise duty on petrol and diesel in November, the official privy to the budget said, “We may consider a proposal to cut fuel tax in April.”
The three officers declined to be identified as the discussions were confidential.
The finance and oil ministries declined to comment.
fear of rising inflation
Economists said a 10% increase in pump prices is likely to push retail inflation by 50-60 basis points through direct and second-order effects, prompting consumers to cut spending on durable and luxury products. can be inspired.
Retail inflation rose to a seven-month high of 6.01% year-on-year in January, crossing the upper limit of the Reserve Bank of India’s (RBI) tolerance band, driven by a rise in fuel and manufacturing prices.
Axis Bank Chief Economist Saugata Bhattacharya said rising retail fuel prices will have a direct impact on the prices of household goods and services depending on the energy intensity.
“However, given the wide-ranging uncertainties on the pace of growth, RBI’s Monetary Policy Committee (MPC) is unlikely to initiate monetary policy tightening immediately.”