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Business News/ Industry / Energy/  What will it take for Modi govt to blink on fuel prices?
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What will it take for Modi govt to blink on fuel prices?

While the Narendra Modi government has ruled out any 'knee-jerk reaction' to fuel price rise and says it has no control over pricing, Indian Oil and others refrained from increasing petrol and diesel prices for 20 days during Karnataka elections

With the daily price change back, diesel and petrol prices on 22 May reached Rs68.08 per litre and Rs76.87 per litre respectively in Delhi, a record high. Photo: Abhijit Bhatlekar/MintPremium
With the daily price change back, diesel and petrol prices on 22 May reached Rs68.08 per litre and Rs76.87 per litre respectively in Delhi, a record high. Photo: Abhijit Bhatlekar/Mint

New Delhi: With state-run oil marketing companies continuing to increase automobile fuel prices, the National Democratic Alliance (NDA) government has held its nerve by not intervening in the backdrop of an international crude oil price rally.

With the daily price revision back in play since 14 May, the government’s politically sensitive decision is in sharp contrast to the dwindling political support in the earlier dispensations that resulted in the failure to meet the full deregulation deadline of 2002.

The NDA government has maintained that it has got no role in pricing and has backed the reform. The dynamic fuel pricing was introduced in June last year, wherein fuel prices change daily depending on global oil price fluctuations. Petroleum minister Dharmendra Pradhan on 2 April said there won’t be any “knee-jerk reaction" with the government balancing the twin goals of development and consumer’s interest.

Three state-run firms—Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—refrained from increasing prices and paused it while the Karnataka election campaign was going on.

In response to Mint’s query on 1 May, IOCL in a 17 May statement said, “Post deregulation of petrol and diesel prices in June 2010 and October 2014 respectively by way of Government of India notifications, Indian Oil Corporation Ltd independently decides retail selling prices of petrol and diesel based on trend of gasoline and gasoil prices in the international market, INR vs USD exchange rate, volatility of international and domestic market condition, competitor’s prices of petrol and diesel etc. Considering all these factors, Indian Oil Corporation Ltd decided to keep petrol and diesel prices temporarily unchanged since 24th April till further review."

The daily price revision is back, with diesel and petrol prices on 22 May reaching Rs68.08 per litre and Rs76.87 per litre respectively in Delhi, a record high. With the government staying its course, there has also been a growing demand for an excise duty cut on petrol and diesel.

“There is no directive from the government as far as the retail price is concerned," said Sanjiv Singh, chairman, IOCL, at the firm’s annual press conference on Tuesday.

Moody’s Investors Service on Tuesday added that the Indian government is unlikely to reverse fuel pricing deregulation because it remains committed to reforms.

Given its role as a major energy consumer, India has also expressed its concerns to Saudi Arabia, the world’s biggest oil producer about “rising prices and its negative impact on consumers and the Indian economy".

It was the United Front government led by Prime Minister I.K. Gujral that set in motion the dismantling of administered price mechanism (APM) in November 1997, the idea for which was first proposed during the Congress government led by Prime Minister Narasimha Rao. While the Congress-led United Progressive Alliance government revived the idea in 2004; with the petrol prices being deregulated in June 2010, it was the Prime Minister Narendra Modi-led NDA government that decontrolled the diesel prices in October 2014.

The real test now follows with the international oil prices hardening. Any advance in global markets is bound to impact India’s oil import bill and trade deficit, given that India is the world’s third largest oil importer. Oil imports rose by over 25% in FY18 to $109 billion from a year ago.

The alarm bells have started ringing with the cost of the Indian basket of crude, which averaged $47.56 and $56.43 per barrel in FY17 and FY18, respectively, rising to an average of $69.30 in April 2018, according to data from the Petroleum Planning and Analysis Cell (PPAC). The price was $77.04 a barrel on 21 May. The Indian basket represents the average of Oman, Dubai and Brent crude.

The spike in oil prices is due to a combination of factors such as President Donald Trump pulling the US out of a 2015 historic accord with energy-rich Iran, Opec and Russia cutting supplies, falling production in Venezuela and geopolitical tensions.

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ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Published: 22 May 2018, 09:43 AM IST
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