Diesel Hike Impact on Autos

Diesel Hike Impact on Autos

Govt to hike fuel prices post Finance Bill okay: report

Get set for a hike in diesel prices soon. The government will raise prices of subsidized fuels such as diesel when the Finance Bill is approved by the Parliament in early May, reports said. Reports said Finance Minister Pranab Mukherjee has promised to raise prices soon to tackle a rising subsidy burden and large deficits. However, it would not be an easy task for the government which is already riddled by inflation worries and under fire for its weak fiscal deficit condition. Moreover, India imports 80% of its energy requirements and rising crude oil prices and a depreciating rupee has only added to the government’s woes. Diesel is a subsided fuel used in transport etc. and raising its prices would only add to inflationary worries. While the government has deregulated the prices of petrol whereby oil marketing companies can raise prices after an informal nod from it, the same has not been the case for diesel in order to check inflation and protect the weaker sections of society. Diesel prices were last raised in July. Also, petrol prices have not been raised since December, keeping in mind the crucial State Assembly elections that followed soon. Reports said gasoline prices could be raised around the same time as diesel.

Fuel Price Hike Impact

Fuel Price Hike

Fuel Price Hike

Fuel Price Hike

Central and State Taxes on Petrol and Diesel

Source: REDIFF.com

Govt rules out rollback of fuel price

The government has ruled out to roll back increase in fuel prices, even as opposition National Democratic Alliance (NDA) called for an all-India bandh today (July 5, 2010) to protest the price hike and rising inflation.

"No question of roll-back," Finance Minister Pranab Mukherjee told reporters, when asked whether the government could review its June 25, 2010 decision of raising prices of petroleum products.

Meanwhile, NDA Working Chairperson L K Advani after a meeting of its leaders, said, "This may be the first time in the history of India's politics that almost all political parties will participate in the Bharat Bandh."

The government last month raised prices of petrol, diesel and kerosene by Rs3.50, Rs2 and Rs3 a litre, respectively and increased the rate of cooking gas by Rs35 a cylinder.

Fuel Price Revision

Fuel Price Revision

Fuel Deregulation - whats the funda ?

Fuel Deregulation - whats the funda ?

How experts view fuel price hike and petrol de-regulation?

The much-awaited Empowered Group of Ministers (EGoM) meeting on Friday culminated in a number of sweeping changes on fuel prices including shift to market-driven prices for petrol. This would result in rise in prices of petrol by 6.7% (an increase of Rs 3.5/ltr). Diesel would also be de-regulated over time and prices have been raised by 5% (Rs 2/ltr) for now.

Hike in fuel duties...Govt backs FM to the hilt

The Government continued to bear the brunt of the opposition ire as fuel prices increased in the wake of the Finance Minister's proposal to hike duties on petroleum products in the Union Budget. However, despite stiff resistance from both, opposition and UPA allies, Pranab Mukherjee stuck to his stand and refused to rollback the increase in duties on petro products. Mukherjee told his party colleagues and key UPA partners that the step (hike in duties on fuels) would have negligible inflationary impact. The congress leadership closed ranks on the issue and accused the opposition of resorting to "political opportunism". Justifying the fuel price hike, party spokesman Manish Tewari said that concessions in excise duty were given in June 2008 when price of crude oil was US$133 per barrel and now with the prices coming down, the Government has partially gone back to the 1998 excise regime.

Tewari said that the impact of the fuel price hike will lead to only 0.4% rise in the wholesale price index (WPI) and claimed that the opposition had attacked the government without even analyzing its implications. The Congress party spokesman asked the opposition to adopt a constructive approach towards such sensitive issues related to the economy. The opposition should introspect before resorting to such political opportunism, he said. "They (NDA) raised prices of petrol 21 times, that of diesel 24 times and that of LPG five times when the NDA was in power," he added. "There is an economic reality articulated clearly by the Finance Minister in the budget and outside in details. That lays the roadmap... I have nothing to add or subtract to that," Tewari said. Backing the Finance Minister's budget proposals, Congress chief Sonia Gandhi stated that fuel price hike was needed to pump money into the social sector.

Fuel Price Hike

Fuel Price Hike

Courage under fire or bungling again ?

The UPA Government finally bit the bullet on the fuel price hike issue and announced a package comprising a mix of price increases and duty changes to enable the public sector oil marketing companies to combat high crude oil prices. The price of petrol was hiked by Rs5 per litre while diesel turned costlier by Rs3 a litre. The Government also increased domestic LPG price by Rs50 per cylinder. Not surprisingly, there was no hike in kerosene price as it is too sensitive an item to be touched in an election-heavy year. The Government had last increased fuel prices in February, the first time since June 2006. Cooking gas prices had been capped since April 2005. Deora said India's petrol price should ideally have risen by 50%, and diesel and cooking gas prices should have doubled, to bring domestic prices in line with international rates.

Separately, the Finance Ministry announced revision in customs duty and excise duty on crude oil and petroleum products to help cushion the common man from the impact of higher fuel prices. Customs duty on crude oil was removed as against the current rate of 5%. Customs duty on diesel and petrol was cut to 2.5% from 7.5% while on other petroleum products (like ATF and Naphtha) the same was down at 5% versus 10%. Excise duty on petrol and diesel was trimmed by Re1 per litre each. Currently, excise duty on petrol is Rs14.35 per litre while the same on diesel is Rs4.60 a litre.

The fuel price hike will cut under recoveries by Rs211.2bn while Rs226.6bn will come from the duty cuts. OMCs themselves will bear net revenue loss of Rs200bn. The subsidy burden of the upstream oil companies will be Rs450bn. The Government will issue oil bonds worth Rs946bn. Despite the bailout package announced by the Government, there still will be a shortfall of around Rs419-420bn.

The price hike may add between 0.5% and 0.6% to wholesale price inflation, Petroleum Secretary M.S. Srinivasan said. Inflation for the week ended May 24 increased to 8.24%. Inflation for the current week ending June 07 will be released on June 20. Most economists expect inflation to cross 9% then, while the cascading effect of the fuel price hike may even take inflation above 10%. And, with inflation forecast to balloon to a double-digit mark, the RBI is also expected to announce fresh round of monetary tightening, including perhaps a small increase in policy rates.

Mindful of this fact, the Government urged ministries and bureaucrats to cut down on wasteful spending, especially on travel. In a rare move, the Prime Minister addressed the nation, explaining to them the rationale behind the fuel price hike, which he termed as "modest". He also urged the nation to conserve as much energy as possible. "We need to be efficient and economical in our use of energy," Dr. Manmohan Singh said. A substantial burden of high crude oil prices is still being borne by the Government and the public sector oil companies, he said.

Emphasising the precarious condition of the state oil companies, Dr. Singh said they are making a large sacrifice and are under severe stress. Issuing bonds and loading deficits on oil companies is not a permanent solution, he added. "We are only passing on our burden to our children who will have to repay this debt," the Prime Minister said, adding that more corrective measures are needed in future to help the oil companies.

The Prime Minister also called on states to do their bit by cutting sales tax on petroleum products. Several states like West Bengal, Bihar and Maharashtra obliged while others like Kerala were likely to follow suit. Even the BJP urged its chief ministers to trim sales tax on petro products.

But, the transporters and truck operators were in no mood to relent, as they hiked rates by up to 15%. At the same time, the Railways said it will absorb the entire burden of the increase in diesel prices. The reduction in sales tax also prompted oil companies to slash ATF prices by over 4%, but the airlines - already bleeding badly due to record high jet fuel prices - refused to pass on the benefits to consumers. Delhi announced that it will hike domestic LPG prices by only Rs10 per cylinder, while Andhra Pradesh decided to bear the entire burden of the hike in cooking gas prices.

PM's Official Speech

My Fellow Citizens,

It has been some time since I have had the opportunity to speak to you. In the time that has gone by, our country has marched forward as one of the world’s fastest growing economies. This has enabled us to generate revenues that have been invested for the welfare of our people - in employment generating programmes, in farmer’s welfare and in building our social and economic infrastructure.

As I speak to you today, I feel confident that the people of India will continue to demonstrate their creativity and potential for high growth. I assure you that our Government will continue to pursue policies that will make our growth process more socially inclusive; more meaningful to all sections of society; more beneficial to our farmers, artisans, and industrial workers.

In the past four years, we have vastly expanded programmes which directly affect the poor and marginalized sections of society. We now have a universal rural employment guarantee of 100 days which is a unique social safety net for the rural poor. Farmers and agriculture are getting attention unprecedented in the last two decades.

The result is that agricultural production is rising much faster now than a decade ago. The education system has been has been expanded at all levels and we have tried to ensure that the nutritional status of our children improves through a universal mid-day meal programme. Bharat Nirman and the National Rural Health Mission and the Jawaharlal Nehru Urban Renewal Mission aim to provide better infrastructure and health care facilities in rural and urban areas. I am sure that all these efforts have started to bear fruit and no one can deny that we are moving in the right direction to eliminate poverty, ignorance and disease.

My Fellow Citizens,

However, I fully share with all of you your concern that in recent months, higher growth has been accompanied by higher inflation. Our government has taken several measures to insulate the less privileged in our society from the full impact of higher inflation.

You are all aware that two important external factors have been responsible for higher inflation. First, rising food and commodity prices around the world and second, rising world oil prices.

Our government has taken many steps to increase food production and procurement, limit food exports and strengthen the Public Distribution System. All these steps, along with positive expectations of a normal monsoon, have already had a positive impact on food price inflation. I am confident that in months to come there will be further stabilisation in food prices.

Our economy is largely self-sufficient in food. We produce enough to meet our needs. For this, we salute our farming community. Our government will continue to empower our farmers and enhance their welfare. We will continue to give a fair price to our farmers for their produce. This will certainly lead to some rise in prices of foodgrains but this is the only way in which we can incentivise higher production and assure the food security of our people.

However, in the case of oil, nature has not blessed us in the same manner. We remain dependent on imports. We are, therefore, vulnerable to global trends in oil prices. When our government came to power in May 2004, we faced a price of $ 39 per barrel for crude oil. Today, that price has gone up to over $ 130 per barrel – an increase of over three times.

This global Oil Shock has imposed a huge burden on our finances and on the financial resources of our Oil Companies. In the past year alone, as oil prices doubled, our Government did not make any adjustments in the price of petrol and other petroleum products. Kerosene prices have not been touched in four years.

Our Government is committed to ensuring that the impact of this global Oil Shock is minimal. We wish to protect as large a section of our society as possible from its effects. This has been at great cost to government finances and to the economy as a whole.

However, business cannot go on like this for ever. We need to learn to adjust to this new international scenario. We need to be efficient and economical in our use of energy. And we need to pay the economic cost of petroleum products. There are limits to which we can keep consumer prices unaffected by rising import costs. Our oil companies cannot go on incurring losses. This way, they will have no money to import crude oil from abroad.

To compensate them, the Central Government has reduced taxation of petroleum products to the extent possible. But given the commitments of the government for vital development and non-development expenditure, taxes on petroleum products cannot be completely eliminated. Thus a rise in prices is inevitable.

However, it has been our endeavour to raise the prices only by a moderate amount. Price of petrol has been raised by Rs 5 per litre, of diesel by Rs 3 per litre and of an LPG cylinder by Rs 50. Prices of kerosene, a vital fuel for the poor, remain unchanged. We continue to bear a subsidy of Rs 250 per cylinder of LPG and almost Rs 20 per litre of kerosene. It must be appreciated that what has been done is the bare minimum, with a substantial burden being borne by the government and the oil companies.

The Central Government, oil companies and consumers are bearing a part of this immense burden. It is therefore incumbent upon state governments, many of whom tax petroleum products substantially, to also contribute to this national effort by suitably reducing state taxes and levies.

My Fellow Citizens,
Taken together, this entire effort will only bridge a tenth of the uncovered gap of over Rs. 200,000 crores. There is still a gap of almost 90% which has to be bridged. This 90%, amounting to almost Rs 180,000 crores, is being bridged by the government. The cuts in excise and customs duties will cost Rs 22,000 crores to the government. The remaining gap of Rs. 150,000 crores will be met by a combination of lower profits for oil companies and compensation to them by the government in the form of oil bonds.

My Fellow Citizens,
I know that the price increases we have had to announce today will not be popular, even though they are only modest. You must remember that the Government is bearing the burden of issuing Oil Bonds. Our oil companies are making a large sacrifice and are under severe stress.

However, I would like the nation to remember that issuing bonds and loading deficits on oil companies is not a permanent solution to this problem. We are only passing on our burden to our children who will have to repay this debt. Cutting down on the returns of our oil companies will choke a sector vital for the growth of the economy. We need more corrective measures in future on many fronts. In the long term, our country must have a sound strategy for energy security.

To begin with, each one of us can conserve energy and contribute to national security. I urge every citizen to conserve energy at every step, every minute of the day. Be it petrol, diesel, kerosene, LPG, electricity or even water – let us learn to save and use efficiently. Let us reduce wasteful consumption of petrol.

Finally, we have to develop alternative sources of energy, whatever be the source. We cannot remain captive to uncertain markets and unsure sources of supply. We have to develop renewable sources of energy, including nuclear energy.

My Fellow Citizens,
Today more and more of our people are enjoying the fruits of development. It is the responsibility of the Government to ensure a secure future for all our people and for future generations. We cannot think only for ourselves, for the present, for the here and now. We must think about what is good for future generations - for the welfare and security of our children, grand children and their children. It is our duty to ensure their food security and energy security.

The steps taken today are part of that process. I hope each one of you will strengthen our hands in building a strong, secure and caring India. An India where the aam aadmi feels safe, secure and hopeful about the future.

It's terrorism - says BJP, Left plans to stop traffic to reduce consumption

BJP lashed out at the Government for hiking the prices of petroleum products saying a “directionless” UPA has unleashed “economic terror” on the nation. At the same time, the Left has also called for nation-wide protests and stir against the price hike.
“This action is disastrous for the economy and all the claims made by the Prime Minister so far on the front on inflation has been proved to be a hoax,” BJP spokesperson Rajiv Pratap Rudy told PTI.
On the other hand, senior Left party leaders termed the fuel price hike as a “slap on the face” of the common man and said it revealed the “anti-people” policies of the Congress-led coalition. The supporters of the four Left parties -- CPI(M), CPI, RSP and Forward Bloc -- will hit the streets from tomorrow morning to force the government to roll-back the hike, senior Left leaders Abani Roy (RSP) and G Devarajan (Forward Bloc) said.
BJP’s Rudy said the Government, which has run out of ideas, has now unleashed this economic terror on the nation by increasing the prices of petrol, diesel and cooking gas. “This decision is the last straw for the UPA government and the last nail on the coffin of the common man, whose interests it claim to champion,” he added.
Asked whether the hike would lead to a discussion among Left parties on withdrawing support to the government, he said, “The Left parties will discuss about withdrawing support in a meeting scheduled later this month. RSP alone can’t take a decision,” Roy said.
Rudy ridiculed the Left parties opposition to the petrol price hike, saying the remarks of the Communists are “hypocritical” as they are part and parcel of this decision

via Mint

Govt finally announces modest hike in fuel prices

The Government finally showed some gumption and announced a marginal hike in retail prices of petrol and diesel while keeping the prices of politically sensitive LPG and Kerosene unchanged. The price of petrol was hiked by Rs2 per litre while that of diesel was increased by Re1 per litre. This was the first upward revision in petrol and diesel prices in the past 20 months. The Government has not increased fuel prices since June 2006, even as crude oil rose 57% in 2007 and surged to US$100 a barrel last month. The Government had actually cut fuel prices in November 2006 and February 2007.

With this, the price of petrol in Delhi rose to Rs45.52/litre from Rs43.52/litre and that of diesel to Rs31.76 a litre from Rs30.48/litre. Fuel prices vary across the country due to different tax structure of states. The state-run oil firms have been suffering heavily owing to the steep increase in crude prices even as local fuel prices have been kept unchanged to avoid a spike in inflation. Oil marketing companies' under-recoveries for the current fiscal year are estimated at Rs718bn. The increase in fuel prices is likely to benefit oil marketing companies by Rs8.4bn.

Meanwhile, Petroleum Secretary M.S. Srinivasan said the contribution of oil bonds towards under-recoveries will go up to 57% from the current level of 43%. Oil marketing companies will get Rs234.6bn of bonds for the year to March 31. They received Rs241.2bn of bonds in the previous fiscal year. Another 33% is currently being borne by public sector oil & gas upstream companies - ONGC and Oil India while the balance is shared by IOC, BPCL and HPCL.

As expected, the Left parties demanded an immediate roll-back, threatening to launch nation-wide protests. The BJP too lashed out on the Government. The matter is expected to be raised in the budget session of the Parliament, which begins on Feb. 25.

Upstream majors ONGC and Oil India will bear a third or Rs240bn. The burden on IOC, BPCL and HPCL will be limited to their last year’s level of 8.4% (Rs61bn) of the total under-realisation. The price hike would cut losses by 1.2%. But, this would provide only partial relief to public sector oil marketing companies. Even with the revised prices, PSU companies will continue to lose Rs7.20/litre on petrol and Rs9.94/litre on diesel.

Fuel Price Hike Coming Soon

A rebound in global oil prices to 10-month highs may force India into another small yet unpopular fuel price increase next month, dousing any lingering talk of the full-scale liberalisation that refiners yearn for.

The Congress party-led government, more wary than ever of its fragile voter base, has trimmed gasoline and diesel prices twice in the past 12 months, rolling back much of the increase of 2-4 rupees in June 2006, when Indian crude was around $67 a barrel.
But with the Indian crude basket nearing $69 this week, and inflation easing to its lowest in over a year, pressure has built within the industry for a rise that could revive shares of hard-hit state-run refiners such as Indian Oil Corp (IOC) and put a mild dampener on resurgent oil demand growth. "Inflation is under control and oil companies are losing money, it's the right time to increase prices," said Jaspreet Singh at brokerage Prabhudas Lilladhar Pvt Ltd.

Annual wholesale price inflation eased last week to 4.28 per cent, its lowest in 14 months, helping soften political resistance. "Perhaps a decision can be taken in July when first-quarter results for the companies will be out," said Singh.

India, like top Asian oil consumer China, sells fuels such as diesel and gasoline at artificially low prices. It partly compensates state-run refiners with special bonds to cover the mounting cost of crude, totalling nearly $6 billion last year.

The projected revenue loss this fiscal year would come to over $12 billion if global markets remained at current prices and retail prices are not raised, the petroleum ministry estimates.

Since the start of 2003, global crude prices have risen by 150 percent while Indian fuel prices have climbed by only 50-68 percent, with the government reluctant to eliminate subsidies for fear of worsening inflation and sparking public unrest.

The government's need for populist measures was underscored by elections in India's most populous state of Uttar Pradesh in May, when a party championing the lowest castes scored a surprise victory and the ruling party lost ground.

"Politically people do not accept the idea that commercial entities set the price. In India it is not possible," one key minister in the government told media.

While the incremental approach to fuel prices may keep its billion-plus citizens happy, it does little to curb the country's rising domestic oil thirst, which grew 5.9 per cent in the last financial year, increasing its uncomfortable reliance on imports.
Other countries that have taken bolder measures have met with more success in helping rein in consumption. Motor fuel demand from Thailand and Indonesia slumped after the former liberalised diesel prices and the latter roughly doubled prices in 2005.

But India's smaller measures, like those in China and Vietnam, have failed to pack much of a punch. "When prices go up marginally there is no change in consumption, but when prices go up significantly, people will start figuring out ways and means of conserving," said Amrit Pandurangi, executive director at PricewaterHouseCoopers.

Political will was tested earlier this year, when petroleum ministry officials prepared an internal note to allow state-run oil companies to set their own prices of petrol and diesel before the end of the fiscal year next March, sources told media.

But this was shot down before reaching the cabinet as the world's biggest democracy treads more cautiously than fast-growing Communist Vietnam, which effectively turned over control of domestic pump prices to retailers in May.

The government appears equally unwilling to cut back on taxes that are unusually high for Asia, making up about 52 per cent of petrol prices and 31 percent of diesel prices. "The pressure is there for it, even if total liberalisation still remains some way off," said Bishal Thapa, analyst at ICF Consulting in New Delhi.

"There's a population that needs to be taken care of - change is not going to be supersonic." Liberalisation would attract renewed interest from global majors in investing in refineries or retail networks, as India seeks to become a fuel export hub to tap its shipping position between Middle Eastern producers and North Asian consumers.

Royal Dutch Shell has a license for 2,000 fuel stations, yet it has set up just 32 fuel stations. BP walked away from a $3 billion joint venture refinery with Hindustan Petroleum Corp Ltd (HPCL) last year, while Total has yet to finalise a deal to help build an up to $3 billion new plant with the same company.

Liberalisation would also help private retailers such as Reliance Industries Ltd and Essar Oil, who have lost market share. "Providing a level playing field will increase the number of players in the Indian retailing sector, bringing in competition, better efficiency and subsequently more cost reduction," said V Raghuraman, of the Confederation of Indian Industries.