Petrol will cost Rs53.50 and diesel Rs39.96 a litre at Mumbai pumps. However, prices of kerosene and cooking gas remain unchanged.
NEW DELHI: Filling up your car’s tank will cost more as the government announced the highest ever increase in retail prices of petrol and diesel on Monday. Petrol will cost Rs53.50 and diesel Rs39.96 a litre at Mumbai pumps, rising by Rs4 and Rs2, respectively.
The government, however, spared the kitchen, with prices of kerosene and cooking gas remaining unchanged.
Petroleum Minister Murli Deora, who announced the changes after a Cabinet meeting, said the diesel price increase had been kept low “since it is also used by farmers”.
The increases have been moderated by making policy changes in other areas, including lowering customs duty on petrol and diesel.
At international crude oil price levels of $71 a barrel, the oil marketing companies would have incurred massive losses of Rs73,500 crore in 2006-07. The current increases will cover only Rs9,300 crore of this deficit. The rest will come from asking ONGC and GAIL to shoulder a Rs24,000 crore subsidy burden, issuing bonds worth Rs28,000 crore to oil marketing companies, and seeking discounts of up to Rs3,000 crore from standalone refineries such as Reliance.
The customs duty cut will save another Rs4,100 crore, leaving an uncovered gap of around Rs2,900 crore, which will be plugged later in the year if oil prices stay high.
The prices of petrol and diesel were last increased in September 2005.
“We’re still protected from the full impact,” said Jibon Mukhopadhyay, professor at the SP Jain Institute of Management. Indeed, oil companies were seeking 12 and 17 per cent increases, respectively, in the prices of petrol and diesel; they have got 8 and 5.2 per cent, respectively.
While there will be an immediate impact on transportation costs, these fuels account for only 6 per cent of the wholesale price index (WPI). DH Pai Panandiker, president, RPG Foundation, said the direct impact will be only 0.6 per cent on the WPI while rating agency CRISIL’s DK Joshi put it even lower at 0.12 per cent.
Even with the cascading effect that will follow, the overall increase in inflation will not be more than 1 per cent, economists believe. Oil ministry officials put the net effect at 0.5-0.7 per cent. This will, however, push inflation a notch higher than the 5 per cent that the Reserve Bank has been targeting for the whole year.
Even that may not happen as the rise in price of diesel, which has greater inflationary potential, is muted. And it will take two to three months for the rise to work itself through the economy.
So, will people cut back spending? Not after the initial day or two, said Pai Panandiker and Mukhopadhyay, because the increase isn’t big enough to pinch. But Joshi said people will start being more economical in their use of fuel. “On the demand side, conservation will start,” he said.
Additional reporting by Seetha
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