New Delhi: India on Thursday raised retail prices of petrol and diesel by 4.6% and 3.3% respectively, the first hikes in 20 months, in a bid to ease losses at state-run oil retailers squeezed by a surge in crude oil prices.
The price increases, announced by Oil Minister Murli Deora, equate to rises of Rs2 ($0.05) per litre of petrol and Re1 for diesel, small adjustments which analysts said were unlikely to add any significant pressure on inflation.
But the decision, which follows months of debate, could trigger protests from communist allies who provide the ruling coalition with a parliamentary majority.
“It was long overdue and should come as a partial relief to the state-run oil companies. There will only be a marginal impact on inflation,” T.K. Bhaumik, chief economist at Reliance Industries Ltd.
“It has been a question of trade-off between politics and economics. (It) was due for a long time. This raise had to take place but I don’t think it is substantial.”
An oil ministry official said the price rises would bring oil firms additional revenues of Rs8.4 billion in the remainder of the financial year ending in March.
World crude oil prices that hit a record above $100 last month have retreated to around $93 a barrel but are still sharply higher than a year ago, forcing many Asian nations to increase their heavily subsidised domestic pump prices.
New Delhi held out longer than most. Beijing caved in to pressure and raised prices by 10% last November.
India’s increases, which will be effective from midnight, will help cut losses at state-run retailers like Indian Oil Corp, Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp, which have been losing millions of dollars daily due to the jump in crude prices.
India forces state retailers to sell widely consumed fuels cheaply to protect poor consumers and help curb inflation and did not increase prices in 2007, even though the cost of crude rose by more than 50% in the year.
The government also said on Thursday it would now issue bonds to oil retailers to cover 56% to 57% of their revenue losses on fuel sales, up from 42.5% earlier.
Upstream companies bear another 33% of the burden while the rest is borne by retailers.
The Indian crude basket has risen about 175% since April 2004, but retail prices of petrol went up by just 29% and those of diesel by 40% in the same period.
India’s last increase came in June 2006, when retail petrol prices went up by 9.2% and diesel by 6.6% and ministers have met regularly in recent weeks.
Elections in nearly a dozen states this year and national parliamentary polls due next year make the increases politically risky for the Congress-party led government.