As Karnataka poll campaign ends and the State gears up for elections on Saturday, consumers should be ready for a petrol price hike. For every one dollar rise in Brent crude prices of one barrel, the oil companies in India increase petrol and diesel prices by 40 paisa per litre. Since April 24 when last time the petrol price was revised, Brent crude prices in international market have gone up by nearly $5 a barrel. It means, the oil companies could be forced to raise prices by Rs 2 per litre after May 12.
Oil marketing Companies (OMCs) revised the petrol prices last time on April 24 when the crude prices flared to $74.01 a barrel. Then OMCs increased the prices of petrol by 13 paise and 18 paise for diesel. The daily revision stopped there. Next day, global crude price fell to $73.07 a barrel, but OMCs did not react. Since then global oil prices have risen by almost five dollars, but OMCs have ignored the situation even as they accumulated losses on their books and their share prices nosedived on stock exchanges.
To offset the accumulated loss of nearly three weeks and to catch up with the current prices of nearly $78 per barrel, OMCs will be forced to increase petrol and diesel prices by at least Rs 2 per litre. This could push up inflation and put a great deal of pressure on economy. The margin of oil companies have shrunk from Rs 3.14 per litre of petrol and diesel on April 1 to an estimated Rs 1.8 per litre on May 10. During the Gujarat polls also, OMCs lost more than Rs 1.5 a litre on marketing margins during the period of campaigning through artificial freezing of prices. However, the Government later allowed them liberty to recover the losses.
Going by the Gujarat experiment, it is safe to assume that in addition to a hike of Rs 2 (40 paise x 5) a litre, which the OMCs will have to unleash on consumers to catch up with the current price, they will also have to go for an additional hike to offset the losses suffered during three weeks of price freeze.
The Economic Survey 2018 said that every $10 per barrel increase in the price of oil brings down GDP growth by 0.2-0.3 percentage points. While the survey said the oil price was expected to grow by 12 per cent in the FY19, the price rise has overshot the upper limit of this percentile range in the first three months itself.
India imports 82 per cent of its total oil requirement and Brent crude oil makes up around 28 per cent of India’s total imports or every $1 rise in crude oil prices of a barrel, the impact on the current account deficit is around $1 billion.
While Oil Minister Dharmendra Pradhan had last month denied reports that the Government had issued any directive to OMCs to keep petrol and diesel prices on freeze, the way the oil companies had to helplessly watch their margin slip, showed that they were forced into inaction. However, with three more State Assembly elections round the corner, will the Centre afford to give freehand to the OMCs is a million dollar question.