With international oil and fuel prices persisting at supernormal levels in the international market due to the West Asia crisis and polling in state elections over, a hike in prices of fuels like petrol, diesel and domestic LPG could be in the offing in the coming days or weeks, according to highly placed sources in the government.
Public sector oil marketing companies (OMCs) are incurring heavy losses on the sale of these fuels and have been pushing for price hikes. Petrol and diesel prices have been frozen for over four years now in India. Moreover, the timing of the current global surge in prices, which clashed with Assembly elections in four states and a Union Territory, made it politically fraught for the prices to be hiked. Throughout March and April, the Ministry of Petroleum and Natural Gas (MoPNG) assured consumers that there was no proposal to hike fuel prices.
Now with the voting over, and international oil prices shooting up again, it may not be too long before the government allows OMCs to raise prices, sources indicated.
“It is inevitable. It is only a matter of time before prices (of petrol, diesel, and domestic LPG) are hiked,” a senior government official told The Indian Express.
On assurances from the MoPNG that prices won’t be hiked, the official said that these were political announcements that came in the middle of the state elections, and are definitely a constraint in raising the prices. The effort has been to hold on to the prices for as long as possible, but with no end in sight to the Strait of Hormuz closure, the status quo on prices cannot continue for long. The official did not elaborate on the timeline for price revisions.
Petrol is currently priced at Rs 94.77 per litre in Delhi, and diesel at Rs 87.67 per litre. Domestic LPG is priced at Rs 913 per 14.2-kg cylinder in the capital. Fuel prices vary across states due to differences in state levies.
Last week, Petroleum Ministry Joint Secretary Sujata Sharma had told a news briefing the OMCs were incurring losses of around Rs 20 per litre on petrol sales and Rs 100 per litre on diesel sales. She also said that there was no proposal to hike petrol and diesel prices. As for domestic LPG, the price was last revised on March 7.
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On April 1, the MoPNG had said that the OMCs were incurring an under-recovery of about Rs 380 per 14.2-kg cylinder on LPG sales to households. The fuel retailers are also incurring under-recoveries on sale of jet fuel for domestic flights.
While the retail prices of petrol and diesel are deregulated, in practice, the government-owned OMCs – with 90% market share in fuel retail – have kept prices stable in consultation with the government. They incur heavy losses when international oil prices surge, and earn hefty profits when the prices slump. Petrol and diesel prices have been more or less frozen since April 2022.
Oil prices have been extremely volatile since the war began, but the petrol and diesel prices have not been hiked to protect the domestic consumer from this volatility. The Indian crude oil basket, which averaged $70 per barrel last year, averaged over $113 in April. “In spite of that, the government has not increased prices and the effort of the government has been to keep the prices stable,” Sharma had said last week, but didn’t comment on how long the prices were likely to remain frozen.
Last week, reports quoted a note by brokerage firm Kotak Institutional Equities to suggest a potential hike of Rs 25-28 per litre in petrol and diesel prices once the Assembly elections concluded. The final phase of voting was held in West Bengal on April 29. The brokerage had said that the case for a petrol and diesel price hike was strong, but the timing was driven by political considerations. The MoPNG had dismissed such reports.
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With the effective halt in vessel movements through the Strait of Hormuz – from where one-fifth of global oil and natural gas flows usually transited – global energy supplies have been hit and prices have skyrocketed.
India depends heavily on oil and gas imports to meet its energy needs, and fuel prices in the country are linked to global oil and fuel price benchmarks. While India has been in a comfortable position with regard to crude oil, petrol, and diesel availability, it still has to bear the brunt of high prices. In the case of LPG, apart from high prices, supplies to India have been notably hit, forcing the government to ration commercial and industrial LPG sales in order to prioritise supplies to crores of households that depend on LPG.
