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Brace for a sharp hike in oil prices after the elections, unless the government cuts taxes to soften the blow. With the rupee sliding against the dollar and benchmark crude prices shooting up, India’s crude cost has topped $100/barrel.
At current pump prices, the under-recovery for oil companies is over Rs 10 for a litre of petrol and diesel. Government data shows the “Indian basket”, or the mix of crude that India buys, spiked to $100.71 per barrel on Thursday as Brent climbed to $105 a barrel, its highest since 2014.
The greenback also appreciated to Rs 75.26. The impact has widened the gap between the cost of production and retail prices of fuel.
Inventory gains — or oil bought at a lower price and refined when prices are higher — can bridge part of the under-recovery, but it is unlikely that retailers will be able to keep retail prices unchanged much longer without suffering deep dents in their bottom lines.
India’s crude cost stood at $83-84 a barrel on November 4 when the Centre cut excise duty by Rs 10 a litre on diesel and Rs 5 on petrol to provide relief ahead of polls in five states.
State governments matched the move by paring VAT. Since then, pump prices have remained frozen under an informal government diktat even though India’s crude cost has risen by about $17-18 a barrel in the meantime. As seen in times of previous polls, the Centre is expected to lift the freeze once polling gets over on March 7 and prices will start moving north unless the government goes for another round of tax cut.
Though unconfirmed reports in recent days say the Centre is evaluating the proposal, it will not be easy. An extended period of high energy prices will hurt India’s economic growth since the country meets 83% of its crude requirement through imports.
Every $1 appreciation in Brent price is estimated to add $2 billion to the oil import bill. Investment bankers reckon a 10% rise in oil prices widens India’s current account deficit by 0.4-0.5% of GDP. The Centre doesn’t directly import oil but costlier crude impacts government maths.
At current pump prices, the under-recovery for oil companies is over Rs 10 for a litre of petrol and diesel. Government data shows the “Indian basket”, or the mix of crude that India buys, spiked to $100.71 per barrel on Thursday as Brent climbed to $105 a barrel, its highest since 2014.
The greenback also appreciated to Rs 75.26. The impact has widened the gap between the cost of production and retail prices of fuel.
Inventory gains — or oil bought at a lower price and refined when prices are higher — can bridge part of the under-recovery, but it is unlikely that retailers will be able to keep retail prices unchanged much longer without suffering deep dents in their bottom lines.
India’s crude cost stood at $83-84 a barrel on November 4 when the Centre cut excise duty by Rs 10 a litre on diesel and Rs 5 on petrol to provide relief ahead of polls in five states.
State governments matched the move by paring VAT. Since then, pump prices have remained frozen under an informal government diktat even though India’s crude cost has risen by about $17-18 a barrel in the meantime. As seen in times of previous polls, the Centre is expected to lift the freeze once polling gets over on March 7 and prices will start moving north unless the government goes for another round of tax cut.
Though unconfirmed reports in recent days say the Centre is evaluating the proposal, it will not be easy. An extended period of high energy prices will hurt India’s economic growth since the country meets 83% of its crude requirement through imports.
Every $1 appreciation in Brent price is estimated to add $2 billion to the oil import bill. Investment bankers reckon a 10% rise in oil prices widens India’s current account deficit by 0.4-0.5% of GDP. The Centre doesn’t directly import oil but costlier crude impacts government maths.
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