India likely to see steep fuel price hike after Assembly elections, says Deloitte


By Debjit Chakraborty,

Deloitte Touche Tohmatsu India expects the nation’s biggest fuel retailers to sharply raise pump prices after Assembly elections end next month, adding pressure on the government and the central bank to take steps to contain inflation.

“Because of the state elections, they haven’t increased the retail prices,” Debasish Mishra, partner at Deloitte, said in an interview with Bloomberg TV’s Haslinda Amin and Rishaad Salamat. He expects companies to increase prices by Rs 8-9 (11-12 cents) a litre to make up for a shortfall in sale price by March 10 when the election process winds down.

Despite a surge in international prices, Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp — which together control more than 90 per cent of the domestic market — have frozen gasoline and diesel rates for over three months, coinciding with elections in five states. While state-run fuel retailers are technically free to align prices with global rates, they often freeze rates in the run-up to polls fearing public backlash over higher prices. 

When the increase eventually happens, the government is likely to absorb some of it by cutting taxes and letting the consumers bear the rest, Mishra said. 

An increase in oil prices poses a problem for the government by impacting disposable incomes in a nation where private consumption accounts for some 60 per cent of gross domestic product. For the central bank, higher oil prices mean faster inflation, which can test its resolve to keep borrowing costs lower for longer to support the economy’s durable recovery from the pandemic.

Every Rs 748.15 ($10) increase in oil price will hurt India’s economic growth by 0.3 per cent to 0.35 per cent, Mishra said. 

“Beyond Rs 7481.50 ($100), it will really have a lot of challenges for the Indian macroeconomic scenario,” Mishra said. “It certainly increases our current account deficit, it puts pressure on the retail inflation. It certainly hurts India.”

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