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India Introduces Fuel Relief On Rising Prices At The Pump

Shares of oil marketing companies fell after finance minister Arun Jaitley said that the government has asked the companies to absorb Rs 1 cut on fuel prices

Notably, petrol prices increased by at least Rs. 25/litre this year, ten times the reduction announced by Jaitely.

After lowering sales tax/VAT charged on petrol following Centre's decision, Maharashtra government on Friday also reduced the diesel price by Rs 1.56 per litre.

So much for good governance?

Since mid-August, the petrol price has risen by Rs 6.86 a litre and diesel by Rs 6.73 - the most in any six-week duration after the daily price revision was introduced in mid-June a year ago. "The kindest thing that can be said about the government's handling of the current volatile situation is "They are clueless", Mr. Chidambaram tweeted on Friday.

Shares in Indian Oil Corp, the country's biggest oil refiner, dropped 11.4 percent in reaction to the news.

Madhya Pradesh government has also made a decision to give an additional relief of ₹2.5/litre on Petrol and Diesel to give total benefit of ₹5/litre in the state, tweeted Madhya Pradesh CM Shivraj Singh Chouhan. If the Centre is serious, it should reduce the tax to what it was when it assumed office. Top sources said that the state government is also considering a reduction in the prices of diesel.

Brent oil on Wednesday crossed $86 per barrel, which is the highest in the last four years, and rising interest rates in the USA have a significant impact across global markets, said Jaitley. In Mumbai, petrol rates had breached Rs 90 per litre.

"By asking the oil marketing companies to absorb the price hike, the government is giving a signal that it can interfere at anytime in a deregulated market in the larger public interest", said Gagan Dixit, a senior analyst with Elara Capital. "So the impact will be Rs 10,500 crore in current fiscal which is only 0.05 per cent of fiscal deficit".

After the minister's announcement, Jharkhand, Gujarat, Chhattisgarh and Maharashtra too announced a reduction in fuel prices.

On September 15, the government had announced an array of steps, including removal of withholding tax on Masala bonds, relaxation for FPIs, and curbs on non-essential imports, to contain the widening CAD and check the rupee fall.