Fuel hike pain will hurt

Fuel price pain is set to squeeze Indian users even more as prices are at a 2016 high. Petrol price has moved up to either side of Rs 70 per litre depending on state taxes. International petrol prices, now hovering around $57 per barrel, are likely to rise to at least $65 soon thanks to OPEC reaching some kind of agreement on production cap. It is believed the government wished to inject the pain gradually although the latest hike in prices — Rs 2.21 per litre on petrol and Rs 1.79 on diesel — was quite steep as seen against recent trends in pricing. While the cost of refined petrol and diesel is around Rs 30 a litre, the major portion of the difference to the price at the pump comprises taxes. The uneasily fluid exchange rate of the rupee to the US dollar is only likely to lead to further hikes.

The good years are way behind us now. Petrol was selling at Rs 30 a litre in 2002. While seeing such prices again is a pipedream, what the latest spike in international crude prices means is inflation is set to rise now after demonetisation had led to a steep fall in the prices of essentials like vegetables. When crude prices were much lower even a year ago, the Centre kept hiking its share of excise duties from fossil fuel and its derivatives, which stands at Rs 21.48 per petrol litre as opposed to Rs 9.20 two years ago and Rs 17.23 per diesel litre as opposed to just Rs 3.46 in 2014. Rising crude prices would hit the government expenditure side since it roughly costs it Rs 6,500 crore for each dollar increase in the price of an imported barrel of crude. However, it is the Indian consumer who is in for more suffering on top of the cash crunch of the note ban.