Polls over, fuel rates likely to increase again

Petrol and diesel prices, stationary for almost two months on account of the assembly elections in four states and one Union territory, could start seeing small increments starting as early as the end of the month, with state-run fuel retailers losing about ₹3 a litre on sale of the fuel because of higher international oil rates and depreciation of rupee against the dollar, people familiar with the matter said.

The last phase of polling in West Bengal is on April 29.

Both international oil prices and exchange rates affect the import of crude oil. The average exchange rate for purchasing crude oil was ₹72.29 to the dollar about a month ago compared to ₹74.77 now. In the same time, the average price of crude oil has jumped by over $5 a barrel. Together, this translates into a ₹3-plus per litre increase in petrol and diesel prices, the people added, asking not to be identified. India imports more than 80% of crude oil it processes and pays in dollars.

“Public sector OMCs [oil marketing companies] are bleeding as they are unable to raise fuel rates because of political reasons. But, they will take a commercial call soon after April 29,” said one person who is directly involved in setting the price of fuels. Prices of petrol and diesel have been reduced marginally (four times) since February 27, a day after the Election Commission announced assembly polls.

To be sure, central and state levies account for the chunk of the retail price of fuel—in Delhi for instance, central levies account for over 36% of petrol’s retail price, and state levies 23%. But, given the parlous state of the economy, especially in the midst of the raging second wave of Covid-19, it is unlikely that those will be reduced. Indeed, the Centre’s move to raise excise even as global oil prices crashed last year, helped boost government revenues.

Officially oil companies are free to align petrol and diesel rates every day in lines with international oil markets. The government, however, manages pump prices of the two fuels through state-run retailers—Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL)—that control almost 90% of the domestic fuel retail market. The government deregulated the pricing of petrol on June 26, 2010 and diesel on October 19, 2014.

IOC, BPCL and HPCL did not respond to emailed queries.

A second person said companies may raise petrol and diesel prices in small doses to compensate for their revenue losses as raising rates at one go may invite public outcry. “Besides, OMCs can also take advantage of any fall in international oil prices and recover past losses by absorbing the price advantage. Oil prices are expected to soften due to a decline in demand because of rising Covid-19 cases in various economies, particularly India, which is the third-largest consumer,” he said.

“A fuel price hike is imminent next month,” added this person.

Benchmark Brent crude was hovering around $66 a barrel in intraday trade on Tuesday.

According to Icra Ltd, retail prices of auto fuels are expected to rise from May onwards.