Deloitte Touche Tohmatsu India expects the nation’s biggest fuel retailers to sharply raise pump prices after local elections end next month, adding pressure on the government and the central bank to take steps to contain inflation.
“Because of the state elections, they haven’t increased the retail prices,” Debasish Mishra, partner at Deloitte, said in an interview with Bloomberg TV’s Haslinda Amin and Rishaad Salamat. He expects companies to increase prices by 8-9 rupees (11-12 cents) a liter to make up for a shortfall in sale price by March 10 when the election process winds down.
Despite a surge in international prices, Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. — which together control more than 90% of the domestic market — have frozen gasoline and diesel rates for over three months, coinciding with elections in five states. While state-run fuel retailers are technically free to align prices with global rates, they often freeze rates in the run-up to polls fearing public backlash over higher prices.
When the increase eventually happens, the government is likely to absorb some of it by cutting taxes and let the consumers bear the rest, Mishra said.
Increase in oil prices pose a problem for the government by impacting disposable incomes in a nation where private consumption accounts for some 60% of gross domestic product. For the central bank, higher oil prices mean faster inflation, which can test its resolve to keep borrowing costs lower for longer to support the economy’s durable recovery from the pandemic.
Every $10 increase in oil price will hurt India’s economic growth by 0.3% to 0.35%, Mishra said.
Read: Goldman Boosts Brent Oil Forecasts; Sees $100 Crude by 3Q 2022
“Beyond $100, it will really have a lot of challenges for the Indian macro economic scenario,” Mishra said. “It certainly increases our current account deficit, it puts pressure on the retail inflation. It certainly hurts India.”-Bloomberg
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