Petrol Price Hikes: Are they justified?

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As a fourth price hike this year, oil companies have announced yet another increase in petrol prices by Rs.1.82 per litre from midnight. Moreover, this fuel price hike comes on the back of unabated double-digit food inflation and high living costs across the country.

In needs to be pointed out that this is 13^th increase in petrol prices since the Manmohan Singh government decided to partially decontrol the fuel prices in June 2010, in order to bring down the burden of subsidies from the increasing domestic consumption of fuel products.

While the EGoM had rendered the petrol prices market-determined, it was decided to pass on the impact of hike in diesel prices in a phased manner as it directly adds-on to the inflationary pressures in the economy.

Petrol would now cost Rs.73.71 in Mumbai and Rs.68.66 in Delhi after administering the midnight price hike. At this juncture, it is necessary to determine whether this move be pegged as pro-consumer move or otherwise?

Logically, common people will allege this move as against consumer and inflationary measure by the government. But, it needs to be kept in mind that this is not-so-bad move for the Indian economy and sustenance of downstream oil companies.

Have a peep into earnings performance of Oil Marketing Companies selling fuel for the automobiles. While HPCL has posted a net loss of Rs.3364 crore in Q2 FY12, BPCL reported losses of Rs.3229 crore for July-September quarter. Both the companies had to bleed as the government failed to offer any compensation for the losses they incurred on fuel sales.

Furthermore, if government provides subsidies on petrol prices for private vehicles, the same comes at the cost of tax-payer’s money fuelled by both poor and the rich. Whereas not all poor people can afford such luxurious ride, than why should the poor bear the brunt of rich people’s desire to ride at subsidized fuel prices?

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