Rising crude prices and a weak rupee push petrol and diesel costs sharply higher
The government-owned oil marketing companies (OMCs) have increased petrol and diesel prices by 90 paise — the second time in five days. Cumulatively, the two price hikes will increase petrol and diesel prices by Rs 3.90.
Though the hike in fuel prices will have a ripple effect on all products and further worsen inflation, the government has no option but to allow oil companies to increase prices to keep themselves afloat. Before the second price hike, OMCs were losing Rs 750 crore per day or over Rs 22,000 crore per month.
Despite the two hikes, according to some estimates, OMCs will have to increase fuel prices by at least Rs 7 per litre to match global crude oil prices. Any such hike will lead to petrol price rising from Rs 98.64 to Rs 105 in Delhi, and nearly Rs 105 to Rs 112 in Tamil Nadu. The highest price will be in Telugu states of Telangana and Andhra Pradesh, where petrol price will shoot up from around Rs 112 to nearly Rs 120.
While higher fuel prices will set inflation on fire, the government has no option left. Apart from higher crude oil prices caused by the US-Iran war, crude oil, which is priced in US dollars, has become costly due to falling rupee value, which has already hit a historic low of 97.07. A weaker rupee would make Indians pay more even if global prices remain constant.
Foreign portfolio investors (FPIs) have been aggressive sellers in the Indian equity markets, bringing pressure on the rupee, and put strain on forex reserves. As a result, the Reserve Bank of India may be forced to increase repo rate to maintain interest rate arbitrage, making loans costly and affecting consumption and investment.
The only way the country can prevent this doomsday scenario is by aggressively cutting the use of petrol and diesel. There is no other alternative.
