Petrol price may be hiked again

Believe it or not, petrol prices are going to be hiked yet again, this time by Re 1 a litre. With inflation at peak levels, a further rise in petrol prices would again lead to higher prices. The overall inflation was in double-digits at 10.55 per cent in June.

Lower food inflation is not expected to pull down the general inflation in July as manufactured-items are getting costlier. Taxes account for almost 50 per cent of the cost of petrol. The recent hike in petrol prices has led to essential commodites becoming very expensive, and instead of reducing the fuel price the government has decided to hike it once again!

Without the taxes, petrol and diesel both would cost about Rs 26-27 per litre. Finance Minister Pranab Mukherjee has earlier said the hike in prices of petroleum products will impact inflation in the short-term but price pressures will moderate from the middle of July.

Petrol prices were freed from government control last month. The deregulation of  petrol price resulted in a Rs 3.50 per litre hike in petrol price while diesel rates were raised by an ad-hoc Rs 2 per litre instead of Rs 3.80 per litre increase required to align them with international market.

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On June 25, domestic LPG prices were increased by Rs 35 per 14.2-kg cylinder and kerosene rates hiked by Rs 3 per litre to cut government's fuel subsidy.

Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum lose Rs 255 crore (Rs 2.55 billion) a day by selling fuel below cost. They may end the fiscal with a Rs 90,000-crore (Rs 900 billion) revenue loss.

They were selling petrol at a loss of Rs 6.07 a litre, while the loss is Rs 6.38 per litre of diesel, Rs 19.74 per litre of PDS kerosene and Rs 254.37 per 14.2-kg LPG cylinder, according to officials.

After the deregulation, Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum had discussed the modalities like the frequency or interval at which prices will be revised and if the PSUs should have uniform rate that would change on same date.

Private firms Reliance Industries, Essar Oil and Royal Dutch/Shell too are being consulted in the exercise.

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Most retailers favour fortnightly revisions in retail rates to reflect changes in cost of raw material (crude oil), but the nation's largest oil firm IOC was at variance, wanting rates not to be revised too often.

Those in favour of a 15-day cycle for price adjustment argue that oil firms already have a mechanism of calculating the desired fuel prices on 1st and 16th of every month.

Also, rates of aviation turbine fuel, which was freed from the government control in 2002, change with cost every fortnight.

But IOC does not want frequent price changes, saying a fixed date for revision may lead to hoarding at pump end.

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The Bharatiya Janata Party-led National Democratic Alliance government had in 2002 decontrolled petrol and diesel prices and rates from April 1, 2002, were revised every fortnight for almost 21 months.

The practice was stopped a few months before the May General Election in 2004, and controls were back when the when United Progressive Alliance came to power.

With the fast paced development in India and China, these two nations will account for 45 per cent of the increase in global primary energy demand by 2030.

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India has become a significant consumer of energy resources. Its oil consumption has risen to 3.3 million barrels per day in 2009, from 643,000 barrels of oil per day in 1980, making it the world's fourth biggest consumer of oil.

However, India is also the fourth largest producer of ethanol in the world. Ethanol production in India has an advantage as its production could potentially leave sugar prices unaffected.

By blending petrol with 10 per cent biofuel, 80 million litres of petrol could be saved annually in India, says a report by the Institute of Defence Studies and Analyses.

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