he petrol price was hiked on Wednesday by a record Rs.7.54 per litre as rupee had a free fall, an unpopular decision that was attacked by allies of UPA government who demanded its immediate rollback holding it as unacceptable. The hike, the third in one year, came a day Session of Parliament and Prime Minister Manmohan Singh speaking of the need to take "difficult decisions" on the third anniversary of UPA-II.
The decision of the oil marketing companies effective midnight tonight is the steepest hike in petrol price ever, the previous increase being Rs. 5 per litre.
after end of the Oil firms had twice raised rates by Rs. 5 per litre - on May 15, 2011 when prices in Delhi were hiked from Rs. 58.37 a litre to Rs. 63.37 per litre and on May 24, 2008 when rates were raised to Rs. 50.56 a litre.
Budget Petrol price in Delhi has been hiked by Rs. 7.54 per litre to Rs. 73.18 a litre. In Mumbai it will cost Rs. 78.57 per litre as against Rs. 70.66 a litre. In Kolkata, Rs. 77.88 per litre and Chennai Rs. 77.53 a litre.
Finance minister Pranab Mukherjee maintained that the decision was taken by oil companies as petrol is a deregulated commodity.
The government had decontrolled petrol price in June 2010 but rates were last increased on November 4 last year. This despite oil price rising by 14.5% and 3.2% fall in value of rupee against the US dollar.
on Tuesday, oil minister S Jaipal Reddy had stated that the depreciation in rupee had necessitated an immediate increase in fuel prices.
But rates of diesel, kerosene and cooking gas have not been revised as a high-power ministerial panel headed by Finance Minister Pranab Mukherjee and having representatives of key UPA allies like TMC and DMK, hasn't met for almost a year now.
Price of diesel, kerosene and cooking gas were last raised in June last year.
Mixed reactions from industry
The steep hike in petrol prices has evoked mixed reactions with a section of industry saying the move would further burden the comman man even as policy makers and experts felt the increase would benefit the economy in the long run.
Industry body Assocham said the hike would be another blow to the already crippled economy.
"This step will increase inflation and prove a big burden on the common man," the chamber said, adding that an increase in petrol price is not likely to give much relief to the government's swelling fiscal deficit.
The automobile industry too hit out at the price hike, saying the increase would hurt the sector which is already reeling under a slump.
"Petrol cars are not selling as such already. With this record hike, the situation will go from bad to worse," Society of Indian Automobile Manufacturers (SIAM) Senior Director Sugato Sen said.
Planning Commission Member Abhijit Sen said the hike was due to declining value of rupee, which today incidentally breached the 56-level against the US dollar.
"It will have immediate impact on prices, but will not have knock-on impact on prices. This in one time price adjustment. It will not have cascading effect" Sen said.
Expressing similar opinion, crisil chief economist DK Joshi said, "Petrol does not have much impact on wholesale price based inflation as it does not have much weight in the index.
"It is not like diesel which is a transport fuel. The impact will be muted. But the increase has been very sharp. I think the WPI inflation will be impacted below 15 basis points", he said.
Welcoming the petrol price hike, another industry body FICCI said that government should also deregulate the prices of other fuel products like kerosene, diesel and cooking gas.
"Rationalisation of petroleum products prices will provide the necessary incentives for the development of alternative and renewable sources of energy; encourage conservation; and more important improve the fiscal balance," FICCI said.
The chamber said the increase had perhaps become inevitable with the continued slide in rupee value and "it can be mitigated by reduction in taxes both by the central and state governments".
SMC Global Securities, Head of Research, Jagannadham Thunuguntla said the hike would benefit the state-run oil marketing companies.
"The government may think of diesel price deregulation following this as Parliament session is over," he added.
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