Petrol Price To Be Hiked Soon

DSIJ Intelligence / 02 Apr 2012

The markets were expecting a hike of around Rs 3 on petrol from April 1, 2012. But this has not been the case. As per the media reports, the OMCs decided on April 1 to keep the price of petrol unchanged.
In the wake of the Union Budget session closing on March 30, 2012, investors had been looking forward to some reforms from the government. One of them was a hike in the petrol prices that had been kept on the back-burner since a month. With the crude oil price rising to USD 125 per barrel from the level of USD 110 it was expected from the government to increase the price of petrol and pass some of these higher costs to the consumers. This was to provide some relief to the oil marketing companies (OMCs) which are at present losing approximately Rs 7.72 per litre on petrol. 

The markets were expecting a hike of around Rs 3 on petrol from April 1, 2012. But this has not been the case. As per the media reports, the OMCs decided on April 1 to keep the price of petrol unchanged, which was certainly in favour of the consumers. However, consumers should note that this is just a mere postponement of the rate hike on fuel. On the other hand, a substantial price hike in CNG and PNG is sure to impact the consumers. The price of compressed natural gas (CNG) was increased by Rs 4.70 to Rs 50.20 per kg while the price of piped natural gas (PNG) was upped by Rs 2.95 to Rs 24.50.
 
We at DSIJ fail to understand why the government has not show any signs of confidence in their decision-making. The petrol price was expected to increase but was put on hold. However, a decision to that effect will be taken after a few weeks and the price will shoot up. It seems that the government is partially handicapped and unable to zero in on quick and correct decisions. This actually affects the scenario of the Indian economy and hides the real picture.

Meanwhile, the monetary policy, scheduled for April 17, 2012, must be watched out for as the WPI inflation figures will be realsed for the month of March before its meeting. The impact of the petrol price would be nil on that data and the RBI governor would also find it difficult to take a correct step at the meet. In an earlier Mindshare article titled ‘What A Petrol Price Hike Really Means For You’, we had shared our view about the potential impact of petrol price on inflation. The transportation cost will also increase with the rise in petrol price, thereby creating an upward movement for the prices of most of the commodities, thus affecting the common man’s budget.
 
We believe that petrol price will be raised sooner or later. The inflationary risk which had seemed to have disappeared from the economic scenario is likely to return in the near term, thereby resulting in high inflation and a high-interest rate environment. The RBI may therefore be compelled to focus on inflation and not cut the rate in its next monetary meet.    

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