It’s time India bites the diesel bullet

May 24, 2012

“81 rupees?” asked an astonished TV anchor when an irate Bengaluru-based consumer called in after the recent 7.5-rupee hike in petrol prices. Perhaps cars that run on milk are now needed, the anchor suggested — when the caller said the dairy product costs around 30 rupees a litre.

While milk-powered automobiles might be a distant dream, the reality remains that those relying on petrol vehicles will now need to do their budgeting again. If a falling rupee and high inflation were not enough, this steepest-ever rise in petrol prices will surely pinch.

The fact remains that petrol prices were decontrolled way back in June 2010. That move gave oil marketing companies (OMCs) freedom to revise prices and also gave the government some saving grace as ministers can now easily say that petrol prices are market driven.

Though the government cannot be blamed for this hike on paper, they do manage to influence OMC decisions. That is indicated by the fact that this hike comes after state elections and a day after the parliament’s budget session got over.

However, it is tough to understand why the government would allow OMCs to raise petrol prices, given the move will not help improve the fiscal situation as the government doesn’t subsidise petrol. It is the subsidy burden of other fuels that strains the government’s finances.

As Hitendra Dave, global markets head at HSBC in Mumbai explained — This (the petrol price hike) has zero fiscal impact. This will only help oil marketing companies.

What was perhaps more needed at this stage was a revision or decontrol of other fuel prices, which could help boost the already weak economic sentiment.

But a decision to revise other fuel prices such as diesel comes with the increased risk of a political backlash given the fuel accounts for over 40 percent of India’s refined products consumption. The move will also hurt inflation in the near term.

The government perhaps knows by now that they will be criticised for every fuel price hike, irrespective of the fact whether the commodity price is controlled or decontrolled.

It is up to them now to bite the bullet of diesel price hike or decontrol, digest that criticism and send a strong signal that they are seriously considering improving the fiscal condition.

(Follow Aditya Kalra on Twitter at @adityayk )

5 comments

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It is too difficult for a common man like me to afford such a stiff hike of petrol price. We are facing a situation of acute inflation today. Government hiking their staff DA more and more but for those who are working with private companies their salary is not hiked yet because appraisal is still going on. Request to all political leader to do something and find a solution.

Posted by GuruDhirendra | Report as abusive

What a pity! Fuel price hike, again?

India being a diesel-driven economy ‘biting the diesel bullet’ would only flare up the cost at the exchequer.

Easy solution lies in; 1)Shut down all private-mode of transportation. 2)Fine those private drivers who drive a truck to work instead a car. 3)Switch to communal transport whereby people hire bigger vehicles and travel in groups.

Or simply walk or cycle to work. Because that was how man grew up when Middle East was just one large strip of desert land.

Posted by maGiK | Report as abusive

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Wonder who is running the country. Intnl Crude prices fall, but fuel price rise in india. Blame it on rupee rate, greek crisis, air india strike… I mean the fin minister and his cohorts in RBI are using every flimsy reason that its beginning to sound like Ripleys ‘believe it or not’. The pompous gov’t servant (parasite) fattens on taxes while struggle to make ends meet. Indian cities will slowly descend into anarchy and organised gangs will replace corporates. Don’t laugh. You guys actually buy the silly reasoning of oil ministry and fin min on fuel pricing.

Posted by kpvidya1999 | Report as abusive

the entire government policy is flawed. you will raise petrol prices to compensate your retailers. but what about a common man? common man uses two wheeler, which uses petrol. government continues to subsidize diesel. so in a way a two wheeler driver pays double for a liter of petrol to compensate a luxury car driver, who pays almost half for a liter of diesel. what is this bullshit?

Posted by sharmarakesh | Report as abusive

Diesel prices rise a few weeks after Hillery Clinton talk the government into cutting back its importation of oil from Iran. Coincidence? I think not.

Posted by boyya | Report as abusive

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