Political rift delays oil price hike
India's political leaders are divided over the extent to which fuel prices should be raised, delaying the government's decision on compensating state firms selling fuels below cost, a top oil ministry official said.
By PTI |
NEW DELHI: India's political leaders are divided over the extent to which fuel prices should be raised, delaying the government's decision on compensating state firms selling fuels below cost, a top oil ministry official said.
The oil ministry had proposed a 15-22 percent increase, but analysts say the government may scale that down to 5-10 percent after the Congress Party, which heads the ruling coalition, lost a state election amid widespread discontent over rising prices.
It faces more tough state battles this year and a general election by May next year. "A consensus is still eluding them. That's why they are buying time," a senior petroleum ministry official, who did not want to be identified, said on Monday.
Political pressure on the government heightened as a small leftist ally said it was withdrawing from a policy-making forum, albeit one that hasn't met in months, angry over the surging cost of living. It said it was not ending its support for the government, but Indian shares fell 2 percent, their biggest single-day drop since April, on concerns of a political rift. The main opposition Bharatiya Janata Party weighed in.
"The ... government is making the burden of the common man unbearable," a party statement said. Fuel subsidies in Asia have shielded consumers there from record high oil prices, leaving powerful demand to fire up the energy price rally further.
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In India, Asia's third-largest oil consumer, domestic fuel sales in 2007/08 rose 7 percent, the fastest pace in eight years. A decision on higher prices had been expected last Saturday, but differences within the cabinet remained and agreement would take time. "Nothing before day after tomorrow," the official said. Whatever they decide, analysts say there is unlikely to be any dramatic reduction in oil demand in Asia's third-largest consumer.
The government fixes the price of petrol, diesel, cooking gas and kerosene to make fuels affordable and to control inflation, but state firms are now suffering a daily revenue loss of 6.5 billion rupees ($153.5 million) as crude costs have soared. For a graph of Indian fuel prices and their relationship with crude rates.
Rising Subsidies
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The government issues bonds to state-run Indian Oil Corp, Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd and forces Oil and Natural Gas Corp to partly compensate them for selling cheap fuel. But with imports accounting for 70 percent of India's oil consumption, the subsidy bill is rising sharply because of costly crude, triggering pleas from the prime minister for a new political consensus on "economic pricing" of key commodities.
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"We cannot allow the subsidy bill to rise any further nor do we have the margin to fully insulate the consumer from the impact of world commodity prices and oil price inflation," Manmohan Singh said earlier on Monday. Recent estimates highlight the scale of the problem. "Under the current high oil price environment, oil subsidies for countries in Asia where prices are capped (China, India,Indonesia and Malaysia) are set to rise four times over 2007," said Credit Suisse in its latest report. It added that subsidies as a as a percentage of GDP would approach 1.7 percent for India.
The cost of the crude oil India imports has doubled since June 2006 but, after a series of retail price revisions, fuel costs less now than it did two years ago. Prices were last raised in February when petrol was increased by 4.6 percent and diesel by 3.3 percent.
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