New Delhi: India's state-run oil retailers will raise petrol prices starting on Wednesday by the most in six months and New Delhi also plans to lift diesel prices, possibly stoking inflation and adding to the government's political woes.
Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum will raise petrol prices by about 5.6 per cent in the next two days due to surging global crude prices.
This would be the steepest rise since June when India freed up petrol prices. The decision, which came along with a rise in prices of diesel and cooking fuels, sparked off political and street protests against the Congress-led coalition government.
Prime Minister Manmohan Singh's government is under attack from the opposition for a slew of corruption scandals, and raising fuel prices in a country where hundreds of millions live in poverty is a move that could anger its core voter base.
The Hindu nationalist Bharatiya Janata Party has demanded a demanded a rollback of hike in petrol prices, saying the increase was 'totally unwarranted and unjustified', Press Trust of India reported late on Wednesday quoting the party spokesman Prakash Javadekar.
It would also complicate monetary policymaking by the Reserve Bank of India, which is focused on stamping down inflation that remains above its comfort zone of around 5 per cent, but is constrained by problems such as tight liquidity.
Oil Minister Murli Deora said the government was trying to ensure an increase in diesel prices would be minimal.
A BPCL spokesman said his firm would raise petrol prices by 2.95 rupees a litre from Wednesday while sources at IOC and HPCL said their firms would raise prices by 2.96 rupees a litre from Thursday.
No official comment was available from IOC and HPCL.
The increases would help the firms protect their margins with crude oil hovering close to $90 a barrel.
RATES DECISON
"Any price hike should be slightly positive for the oil marketing companies because the subsidy burden will come down a bit," said Ambareesh Baliga, vice president at Mumbai's Karvy Stock Broking.
"Just like in the past, it should be a positive trigger for the stocks. But I don't see too much impact overall, because this has been expected," he said.
Raising diesel prices is a political hot potato in India as it accounts for a third of the country's fuel demand and could feed into a general price rise.
India's wholesale price index rose 7.48 per cent in November from a year earlier compared with 8.58 per cent in October.
"If energy prices rise and food prices remain sticky, inflation may not fall as much as RBI would want by March and therefore RBI may then hike rates in March," said Mohan Shenoi, head of treasury at Kotak Mahindra Bank in Mumbai.
U.S. crude for January delivery fell 33 cents to settle at $88.28 a barrel. Prices reached a 26-month high of $90.76 on Dec. 7.
ICE Brent crude for January managed a 2 cent gain to settle at $91.21 a barrel,
Last week, Oil Secretary S. Sundareshan said oil marketing companies were losing 4.80 rupees (10 cents) in revenue for every litre of diesel sold and ruled out diesel price deregulation at this juncture.