Partial roll back of petrol price increase likely to be announced end of May, say sources

After reports emerged that the government is considering a partial rollback of an increase in petrol prices, sources on Friday said that a reduction in the price hike will likely be announced on May 30, but will take effect two days later on June 1.

The Bharatiya Janata Party, which heads the NDA, has called for a nationwide strike on May 31 to protest the steepest-ever hike in petrol prices.
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Oil Minister S Jaipal Reddy, who returned a day early from an overseas visit on Thursday night, today briefed the Congress Party’s top leadership on the price hikes.

Reddy was reportedly insistent that there is no room for an immediate price cut, these sources said.

The government, which has been facing flak from both the opposition as well as some of its own allies, is reported to be studying ways to prevent the National Democratic Alliance – the lead opposition group—from taking credit for a potential price cut in June.


The sources also said that any price increase in diesel and LPG – both politically and economically sensitive fuels – have been put off.

On Wednesday, oil marketing companies announced a Rs6.28 a litre increase in the price of petrol, exclusive of sales and value-added tax. The 10 per cent increase – the steepest ever – sparked widespread protests by political parties, and attracted criticism from consumers, soon snowballing into a major headache for the ruling United Progressive Alliance government.

Oil marketing companies have defended the hike, saying the large amount of under-recoveries from selling petrol at below procurement and refining prices, has put unbearable pressure on their balance sheets.

“We were selling petrol at $109 when our purchase price of crude was about $120-122," R S Butola, chairman of the Indian Oil Corp., said on Thursday. "How long can a producer go on like this?" IOC, he said, has already incurred losses of Rs 1,056 crore in the current fiscal, while the industry overall has lost about Rs2,400 crore, he said.

Adding to OMCs financial burden is a rapidly falling rupee, which has fallen to seven record lows in as many days on account of a weakening euro as well as domestic demand from the OMCs themselves. A falling rupee makes purchases more expensive for OMCs and drives the rupee further down. Recent policy proposals on taxation have also kept global investors, a key source of dollars, away from Indian equity markets. India imports over 80 per cent of its oil needs, which means that state-run OMCs have no choice but to buy dollars.