India’s fuel blues to get worse

With oil turning costlier relentlessly – Brent crude went past $80 a barrel yesterday, up 3.3 per cent from a week ago and a three-and-half-year high – the cost of Indian basket went to a prohibitive $76 a barrel. Add to that rupee falling sharply against the dollar, and the government refusing point blank on reducing excise duty on fuel, Indian consumers are in for some rude shocks in the wweeks to come.

After a 19-day reprieve to consumers owing to assembly elections in Karnataka, oil marketing companies (OMCs) had increased petrol and diesel prices early this week. Since then, prices have been going up on a daily basis.

For every $1 increase in crude price, it is estimated that domestic prices increase by around 63 paise per litre for both diesel and petrol. A one rupee depreciation against the dollar requires a 50 paise increase in the prices of these fuels. While 47 per cent of petrol prices comprises excise duty and value-added tax, the figure stands at around 40 per cent for diesel.

So far, the Centre and states have shown no inclination to cut the taxes.

Morgan Stanley expects Brent to hit $90 a barrel in 2020.

For several consecutive months in the recent past, except for major election seasons, OMCs have been revising petrol and diesel prices on a daily basis depending on the rolling 15-day petroleum product prices in the international market. Brent crude price is now at its highest since November 2014.

At the same time, while the rupee gained 10 paise at the end of trade on Thursday to close at 67.70 against the dollar, the Indian currency had fallen to a 16-month low of 68.15 during intra-day trade on Wednesday.

According to analysts, OMCs may try to regain their lost marketing margins.

Shekhar Ghosh is a communications consultant and and former journalist, who has edited and written for publications such as like Business India, Business Standard, Business Today and Outlook.

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