Fuel prices hit record highs as Rupee slides, Opposition attacks government

Petrol and diesel prices rose for the ninth consecutive day on Monday, touching new highs on account of a sharp fall in rupee and a rise in crude oil rates, hurting people across urban and rural India, threatening to cause a spike in inflation, and providing ammunition to political opponents of the National Democratic Alliance government.

Petrol price in Delhi was ₹79.15 a litre, up from ₹78.84 on Sunday, according to the price notification of state-owned fuel retailers. This came after ‎a 31 paise/litre hike on Monday. Prices in Delhi were the cheapest among all metros and most state capitals. A litre of petrol in Mumbai cost ₹‎86.56 on Monday. In Kolkata and Chennai, petrol was priced at ₹82.06 and ₹82.24 a litre, respectively, against ₹81.76 and ₹81.92.

Fuel prices vary from state to state due to local levies.

Diesel rates were hiked by 39 paise a litre, the highest single-day increase in 2018. In Delhi, diesel climbed to a fresh high of ₹71.15/litre. The fuel cost ₹‎75.54 a litre in Mumbai. It was sold at ₹74 and ₹75.19 per litre in Kolkata and Chennai, respectively, up from the previous levels of ₹73.61 and ₹74.77 a litre.

Petrol and diesel prices in Delhi have increased by 13% and 19% respectively in this calendar year so far. With expectations of further tightening in oil prices due to a mix of factors such as declining inventories in the US, and Iran sanctions coming into place, the trend of rising petroleum prices is likely to continue.

Taxes account for between 37% and 47% of the retail price of fuel and dealer commissions between 3.8% and 4.8%. For every rupee cut in excise duty on petrol and diesel, there is a ₹13,000-14,000 crore hit to the exchequer.

Anil Baluni, the ruling Bharatiya Janata Party’s (BJP’s) head of the media department and a Rajya Sabha MP, said, “This is a reflection of the international market situation and developments related to Iran. It will get controlled. The government is carefully monitoring the situation.”

Union petroleum and natural gas minister Dharmendra Pradhan had on Sunday blamed “external factors” for the rise in domestic prices of petrol and diesel, adding that this phase could be a temporary one.

“I would like to mention two points, and both these subjects are external. OPEC (Organisation of the Petroleum Exporting Countries) had promised that it will raise production by one million barrels per day, which was not raised.”

“Apart from that, crises in countries like Venezuela and Iran are increasing. There is a pressure on oil prices due to decrease in production. Secondly, global currencies have weakened against the US dollar,” Pradhan had said in Surat.

But the Opposition launched a fresh offensive on the government over the hike in fuel prices.

“Dear Modiji, please show some kindness on a festival day...Your jumlas are not taxed, but when will you reduce the tax on petrol-diesel? In Expectation -Distressed People,” Congress’ chief spokesperson Randeep Singh Surjewala tweeted, referring to the festival of Janmashtami.

CPI(M) politburo member Md Salim said, “The BJP had promised to cool down petrol and diesel prices in its manifesto but now they are trying to justify the steep, record-breaking prices of petro-products.”

Telugu Desam Party president and Andhra Pradesh chief minister N Chandrababu Naidu, an ally-turned-rival of the BJP, asked, “The value of rupee is falling down rapidly with every passing day. I am not surprised if it touches ₹100 per dollar in the coming days. The prices of petrol and diesel are shooting up steeply and very soon, the price of petrol might touch ₹100 per litre. Where are we heading to?”

To be sure, the current phase of increase in petrol-diesel prices is not unprecedented. An HT analysis of petrol and diesel prices in Delhi from 2002 onwards shows that there are instances of a much bigger rise in petrol-diesel prices in the past. Petrol and diesel prices increased by 18% and 23.5% and 26.2% and 33.3% in 2009-10 and 2002-03 respectively. However, there are certain aspects which make the current phase of petrol-diesel price hike unique.

Officials said the spike in rates was on account of the exchange rate falling to a record ₹71 against the US dollar, depreciating by ₹2.5 in a month.

Rupee closed at 71.22 to the dollar after touching a record low of 71.25 on Monday. The recent slump has lifted the import cost of crude oil, subsequently raising fuel prices.

Also, crude oil has gained $7 a barrel in a fortnight, driven by fears that the US sanctions on Iran will likely contract supplies.

The appreciation of dollar against rupee also pushed up rates for compressed natural gas (CNG) as well as piped natural gas (PNG) since the price of gas procured by city distributors was mostly dollar-denominated.

Indraprastha Gas Ltd, which retails gas in the national capital, raised on Sunday the prices of CNG by 63 paise per kg and by ₹1.11 per standard cubic meter for piped natural gas supplied to households for cooking purposes.

CNG will now cost ₹42.60 per kg in Delhi and ₹49.30 per kg in Noida, Greater Noida and Ghaziabad. The consumer price of PNG to the households in Delhi was increased to ₹28.25 per scm, while the same in Noida, Greater Noida and Ghaziabad will be ₹30.10 per scm.

Petrol and diesel prices have already increased by 7.4% and 10.2% between April 1, 2018 and September 3, 2018. If the current trend continues, both petrol and diesel prices will have a double digit price growth in the current fiscal year. If this happens, it will be the first time since 2002-03 that the country will have experienced double digit inflation in petrol-diesel prices for three years in a row.

Also, there was a significant difference in price trajectories of petrol and diesel before the present government assumed office in 2014. This was because diesel prices were not completely deregulated and hence more immune to oil price movements. For example, even though petrol prices increased by 21.8% in 2010-11, diesel prices actually went down. While this was not always the case, the government had an option to provide a cushion against rise in diesel prices. Given the importance of diesel in the transport industry, this could be used as a policy instrument to contain the general inflationary impact of petroleum price hike. With deregulation of diesel prices in 2014, no such option exists anymore. In fact, diesel prices have grown at a faster rate than petrol prices in the last three years. This means that the current phase of rising petroleum prices is likely to lead to a bigger spill over on the headline inflation numbers.

“It needs to be kept in mind that the effect of rise in international oil prices is not restricted to petrol and diesel prices alone, as even petrochemicals have a widespread use in the economy,” said Himanshu (one name), an associate professor of economics at Jawaharlal Nehru University.

Without a reduction in petroleum taxes, which can complicate an already strained fiscal situation, inflationary pressures from rising oil prices will be difficult to douse, he added.

(With agency inputs)