India increased diesel tariff for
the first time in more than a year to reduce the burden of
capping fuel prices and help refiners cut revenue losses by 203
billion rupees ($3.7 billion).
The price of diesel was raised 14 percent to about 47 rupees a liter in New Delhi, the oil ministry said in an e- mailed statement. That’s the first increase since June 25, 2011, according to data on refiner Indian Oil Corp.’s website. Gasoline and kerosene were left unchanged, while the number of subsidized cooking gas bottles for each buyer was limited to six a year.
Higher fuel tariffs will reduce record losses at the three state refiners and ease the government’s subsidy costs as it seeks to curb spending. Prime Minister Manmohan Singh is trying to cut a budget deficit amid high inflation, slowing economic growth and the threat of a rating downgrade.
“This is going to be inflationary in the short term, but the extent of savings on the fiscal side doesn’t seem to be substantial,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “It will provide some relief to refiners sulking under massive losses.”
The new diesel price includes a 1.50 rupee-a-liter increase in excise duty, according to the statement e-mailed yesterday after a meeting of a cabinet panel in New Delhi.
Excise duty on gasoline was reduced by 5.30 rupees a liter and the benefit won’t be passed to customers. Gasoline currently costs 68.46 rupees a liter in New Delhi and was last revised in May.
Indian Oil shares rose 0.6 percent to 254.60 rupees at the close in Mumbai, before the price changes, compared with a 0.1 percent increase in the benchmark Sensitive Index. Bharat Petroleum Corp. gained 2.1 percent and Hindustan Petroleum (HPCL) advanced 0.6 percent.
The refiners sell diesel, cooking gas and kerosene at controlled prices to curb inflation, while they are free to set gasoline rates. They are partly compensated by cash payments from the government and discounts on crude oil by state explorers.
Singh is targetting a budget deficit of 5.1 percent of gross domestic product in the year ending March from 5.8 percent a year earlier. Asia’s third-largest economy grew 5.5 percent in the three months ended June 30 after expanding 5.3 percent in the previous quarter, the least in three years.
Standard & Poor’s and Fitch Ratings this year cut the India’s sovereign credit outlook to negative, a step closer to non-investment grade rating, citing widening budget deficit.
The price increase shows “the government is committed to contain the fiscal deficit at the level indicated in the budget,” C. Rangarajan, an adviser to the prime minister, said in an interview to Bloomberg TV India yesterday. “The important thing to note is that the government is willing to act.”
India’s benchmark wholesale-price index, which has remained above the central bank’s 5 percent comfort level since December 2009, probably accelerated to 7.1 percent in August, according to a Bloomberg survey of 39 economists before data due today. The Reserve Bank of India will keep borrowing costs at the highest level among major Asian economies at its Sept. 17 policy review, a separate Bloomberg survey showed.
The rupee has weakened 14 percent against the U.S. dollar in the past year, the worst performance among the 11 major Asian currencies tracked by Bloomberg. The rupee fell 0.3 percent to 55.42 a dollar yesterday.
The weaker currency has increased costs for Indian refiners, which buy about 80 percent of their oil requirements from overseas. Brent crude oil’s 20 percent surge this quarter has added to the cost of producing fuels.
India’s crude oil import bill accounted for 32 percent of the country’s $489 billion import expense in the year ended March. The refiners were paid 835 billion rupees in the year ended March 31 as compensation, the oil ministry said May 22 in a statement in parliament. That’s 60 percent of the loss of 1.38 trillion rupees incurred in the period.
The three state refiners lost 5.5 billion rupees daily on diesel, kerosene and cooking gas sales as of yesterday, according to oil ministry data. Gasoline was freed from government control in June 2010.
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Abhijit Roy Chowdhury in New Delhi at achowdhury11@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net
The price of diesel was raised 14 percent to about 47 rupees a liter in New Delhi, the oil ministry said in an e- mailed statement. That’s the first increase since June 25, 2011, according to data on refiner Indian Oil Corp.’s website. Gasoline and kerosene were left unchanged, while the number of subsidized cooking gas bottles for each buyer was limited to six a year.
Higher fuel tariffs will reduce record losses at the three state refiners and ease the government’s subsidy costs as it seeks to curb spending. Prime Minister Manmohan Singh is trying to cut a budget deficit amid high inflation, slowing economic growth and the threat of a rating downgrade.
“This is going to be inflationary in the short term, but the extent of savings on the fiscal side doesn’t seem to be substantial,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “It will provide some relief to refiners sulking under massive losses.”
The new diesel price includes a 1.50 rupee-a-liter increase in excise duty, according to the statement e-mailed yesterday after a meeting of a cabinet panel in New Delhi.
Excise duty on gasoline was reduced by 5.30 rupees a liter and the benefit won’t be passed to customers. Gasoline currently costs 68.46 rupees a liter in New Delhi and was last revised in May.
Cash Shortfall
The price and tax changes will help the three state-run refiners including Indian Oil cut the cash shortfall from below- cost fuel sales to 1.67 trillion rupees, the ministry said. Indian Oil (IOCL) posted a loss of 224.5 billion rupees in the quarter ended June 30, the biggest in the nation’s corporate history, as the government failed to compensate the company.Indian Oil shares rose 0.6 percent to 254.60 rupees at the close in Mumbai, before the price changes, compared with a 0.1 percent increase in the benchmark Sensitive Index. Bharat Petroleum Corp. gained 2.1 percent and Hindustan Petroleum (HPCL) advanced 0.6 percent.
The refiners sell diesel, cooking gas and kerosene at controlled prices to curb inflation, while they are free to set gasoline rates. They are partly compensated by cash payments from the government and discounts on crude oil by state explorers.
Budget Deficit
India plans to trim its subsidy bill for food, fuel and fertilizer by 12 percent to 1.9 trillion rupees, or 2 percent of gross domestic product, this financial year.Singh is targetting a budget deficit of 5.1 percent of gross domestic product in the year ending March from 5.8 percent a year earlier. Asia’s third-largest economy grew 5.5 percent in the three months ended June 30 after expanding 5.3 percent in the previous quarter, the least in three years.
Standard & Poor’s and Fitch Ratings this year cut the India’s sovereign credit outlook to negative, a step closer to non-investment grade rating, citing widening budget deficit.
The price increase shows “the government is committed to contain the fiscal deficit at the level indicated in the budget,” C. Rangarajan, an adviser to the prime minister, said in an interview to Bloomberg TV India yesterday. “The important thing to note is that the government is willing to act.”
India’s benchmark wholesale-price index, which has remained above the central bank’s 5 percent comfort level since December 2009, probably accelerated to 7.1 percent in August, according to a Bloomberg survey of 39 economists before data due today. The Reserve Bank of India will keep borrowing costs at the highest level among major Asian economies at its Sept. 17 policy review, a separate Bloomberg survey showed.
Political Issue
Fuel pricing is a sensitive political issue in India. Diesel is used to power generators in farms and by trucks that transport food. Nomura’s Varma estimates the increase in diesel prices may have a direct impact of about 65 basis points on inflation.The rupee has weakened 14 percent against the U.S. dollar in the past year, the worst performance among the 11 major Asian currencies tracked by Bloomberg. The rupee fell 0.3 percent to 55.42 a dollar yesterday.
The weaker currency has increased costs for Indian refiners, which buy about 80 percent of their oil requirements from overseas. Brent crude oil’s 20 percent surge this quarter has added to the cost of producing fuels.
India’s crude oil import bill accounted for 32 percent of the country’s $489 billion import expense in the year ended March. The refiners were paid 835 billion rupees in the year ended March 31 as compensation, the oil ministry said May 22 in a statement in parliament. That’s 60 percent of the loss of 1.38 trillion rupees incurred in the period.
The three state refiners lost 5.5 billion rupees daily on diesel, kerosene and cooking gas sales as of yesterday, according to oil ministry data. Gasoline was freed from government control in June 2010.
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Abhijit Roy Chowdhury in New Delhi at achowdhury11@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net
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1 comment:
In a system of "controlled prices" and cross-subsidy, the absolute and relative effect of issues like management / mis-management of the economy (affecting the Exchange Rate of currency), efficiency, and rise of crude prices in terms of US Dollars, etc. get obfuscated. Be as it may, the questions are: How is this six cylinder policy going to be implemented and administered? How will it be ensured that consumers buying their first six "subsidised" cylinders get the same level of dealers' service as those buying cylinders at "full" price? How to prevent multiple connections in one house-hold? What about joint families? Remember the Ration shop and PDS system, with its bogus cards, stocks being perenially out of supply, high-handed behaviour et al. I see history being repeated, and the hapless consumer at the receiving end in more ways than one.
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