While the govt says it hasn’t given any directives over prices, Indian Oil increased prices Monday for the first time since 24 April.
New Delhi: India’s state-run petroleum companies resumed raising retail petrol and diesel prices after a three-week hiatus, which coincided with the run-up to elections in Karnataka. The polls took place Saturday, and the results are to be declared Tuesday.
Indian Oil Corporation, the nation’s biggest fuel-refiner and de facto price-setter for other state-run refiners, increased prices Monday. That’s the first change since 24 April, data on the company’s website showed, and the longest stretch of unchanged prices since the government-owned refiners moved to daily revisions last year to reflect international oil prices.
Brent crude, the global benchmark, rose more than 4 per cent in the same period.
Prime Minister Narendra Modi’s target of keeping inflation in check has made fuel prices a sensitive issue in India, where the ruling Bharatiya Janata Party is contesting several state elections ahead of the general election next year.
Prices of diesel, the most-used fuel in India, are hovering around record levels, while petrol prices are the highest in more than four years. India imports more than 80 per cent of its annual crude oil requirement.
While the government has said it hasn’t given fuel retailers any directives over prices, the timing of the recent freeze and subsequent resumption has raised speculation that fuel prices are being used to bolster support at the polls.
Politics or an economic decision?
“It was only because of elections that the pricing was put on hold,” said Nitin Tiwari at Antique Stock Broking. “Now that the elections are over, they will continue to revise the prices.”
D.K. Srivastava, chief policy adviser, EY India, agreed. “Prices are market-based and directly linked to crude oil fluctuations. When the crude prices were moving up, the freeze in domestic fuel prices was unnatural,” he said.
“An increase was imminent now as the elections are over and revisions will be more regular once again,” said Deven Choksey, managing director of K.R. Choksey Shares & Securities Pvt Ltd. “I’m not sure if they will be able to recoup the losses for not changing prices in the past few weeks.”
Refiners will try and raise prices by about Rs 2 per litre to make up for the shortfall because of the unchanged rates, Antique’s Tiwari said.
The move is likely to accelerate inflation further, which would eventually harm the public by increasing the prices of daily use items such as pulses and vegetables in June.
Devendra Pant, chief economist at India Ratings & Research, said: “The freeze will have a serious bearing on inflation in the coming months.”
EY’s Srivastava also said: “The resistance wouldn’t help the consumer much, as it is likely to cause a serious bearing on inflation – both consumer price inflation and wholesale price inflation – along with widening fiscal deficit and current account deficit.”
Conspiracy theories
However, another set of economists said finding a political connection is a “default” explanation.
Abheek Barua, chief economist at HDFC Bank Ltd, said: “All these are conspiracy theories. Freezing the price hike was a serious and a sensible economic decision.
“It was important for the government to observe the fluctuations for a while before forwarding the hike to the consumer.”
An oil ministry spokesman referred questions to Indian Oil. An Indian Oil spokesman declined to comment.
(With inputs from Bloomberg and Subrata Panda)