Petrol Price Up By Rs 1.5, Diesel Up By Rs 0.45 Per Litre

Nobody would want to shell out more money for something he/she bought at a lower cost earlier. However, since the past couple of years, a continuous price rise across various commodities and services has been pinching consumers across India. Another announcement, which came from the government last weekend, would further result into an extra spending at the consumers’ end.

The petrol price was hiked by Rs 1.5/litre, while diesel prices were raised by 45 paise/litre, effective from February 16, 2013. With this move, the revised rate of petrol in New Delhi is Rs 69.05/litre and Rs 48.16/litre for diesel.

One must note that an upward revision in petrol and diesel prices not only implies a costlier public transport in the coming days but also a potential rise in prices of various products and categories. Transportation, being a part of products’ cost, it would lead to this price hike. Inflation, measured by Consumer Price Index (CPI), is still way above the RBI comfort zone and is it has been escalating since the past three to four months. CPI, for the month of January 2013, stands at 10.79%, higher by 23 basis points on a month on month basis. We believe that with the hike in fuel prices, it would be yet higher for the month of February 2013.

Over this fuel price hike, Oil Marketing Companies’ (OMCs) stocks like BPCL, HPCL and IOC traded higher in today’s trade. This is because the company's would have better realisation and less under-recovery. OMCs have been facing headwinds since the past one month, as Brent Crude prices have moved northwards currently at USD 118 per barrel. Due to higher crude oil prices, under-recoveries of the OMCs have gone up almost from Rs 9/litre to Rs 11/litre. A small hike in diesel prices (45 paise) would bring down the under-recovery approximately by Rs 1/litre.

We also know that government, since September 2012, has been more aggressive and is bringing in the impending reforms. The momentum continued and earlier in 2013, the government proposed a diesel price de-regulation and had expected to increase diesel prices approximately by 50 paise every month to cut the current subsidy of around Rs 10/litre. This would result in a reduction in subsidies by the government, thus helping it to contain the twin (fiscal and current account) deficit. We believe that the move would surely help at the central level, but it would hit hard to the common man.

Further, if diesel prices are hiked, the demand for petrol cars would spurt. The diesel vehicles are already losing their cost competitiveness against the petrol vehicles. This could have a negative impact on companies like Ashok Leyland and Tata Motors who are into manufacturing and selling of commercial diesel-run vehicles.

Anything which pinches us should be voiced loud. This is what some of the Trade Unions and Public Transport drivers are protesting for. According to media reports, the hike in petrol and diesel prices have led to a protest against the government and a two-day nationwide bandh has been called for. The bandh, which is likely to be held on February 20 and 21, would result in a huge economic loss to the country.

But at times, the situation puts both the sections in a fix. On one hand, the government is hoping to improve the country's financials and on the other, the common man whose monthly budget has been sky-rocketing. However, a price hike, which might be painful in the short run, will definitely help in the long run.