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Thursday, May 24, 2012

Fuel hike

It’s time India bites the diesel bullet

price hike
“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.

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