Inflation derails fuel price hike plans

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A hike in the fuel prices are not likely in the near term. With inflation in double digits, it has become difficult for the government to take a decision on the fuel price hike.
Even the stock markets have discounted any fuel price hike and shares of the PSU oil marketing companies were battered on the stock exchanges on Tuesday after the inflation figures came out.

The empowered group of ministers (EGoM) on the decontrol of fuel prices will not meet on Thursday after the cabinet meeting as scheduled, according to the petroleum minister, Mr Murli Deora.
The petroleum minister said that he was trying to hold the meeting of the EGoM on Thursday after the cabinet meeting, where all the ministers are present.
“But the meeting could not be fixed for tomorrow because of prior commitments on the part of certain ministers in the group. We are trying for a meeting next week,” said Mr Deora.
Mr Deora has meanwhile asked the state chief ministers to reduce the sales tax on petrol and diesel.
However, according to sources the EGoM meet next week may not be possible as the finance minister, Mr Pranab Mukherjee, who heads the panel will be out the country for some days.
Last week the EGoM had deferred a decision on the decontrol of fuel prices as a number of ministers were absent. Hiking the fuel prices has become a difficult thing for the government due to double digit inflation in the country. While the food inflation has been in double digits for some time now, non-food items are also witnessing an upward pressure in their prices.
This is a setback to the government as it was under pressure from the oil ministry and the oil refining and marketing companies to free the controls on pricing.
There was a view expressed even by the Kirit Parikh committee that petrol pricing could be freed immediately as it does not have any snowballing effect as diesel has. It is used primarily by car owners.
However the opposition to raising of fuel prices was very strong particularly by the Congress’ alliance partners. They opposed it even before the latest inflation figures were out.
However, Goldman Sachs said that while the delay in holding the Egom prolongs the wait for reforms, it believes that the process of fuel pricing reforms is moving forward. “Recent government actions indicates that there is an appetite for some tough decisions on energy pricing,” it added.
A Goldman Sachs report said inflation and oil prices are likely to come down in the second half.