New Delhi: India’s new government may face one of its trickiest economic issues—subsidized fuel prices—sooner than it likes—as crude oil’s rally to $60 (around Rs2,860) pushes refiners to the brink of profitability.
The Congress party’s strong showing in elections has revived hopes of pushing through a host of important reforms, analysts say, but it would probably prefer to wait before relaxing its control of auto and cooking fuel prices.
It may not have that luxury if oil climbs further, forcing the government to bulk up on more unwanted debt in the form of oil bonds to cover losses at state refiners such as Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd, which say domestic rates are now about 5% below global levels.
Even after being handed a strong mandate, the Congress party is unlikely to rush ahead with such a sensitive issue, preferring instead a phased approach.
“It may be perceived as anti-people at least for political reasons. The government cannot remove the controls in one go,” said T.K. Bhaumik, economic adviser for the JK Group.