India’s First Fuel Price Hike in Four Years
In a significant shift, India’s state-run fuel retailers have raised diesel and gasoline prices for the first time in four years. This decision comes as global crude prices, driven by geopolitical tensions such as the ongoing conflict in Iran, put pressure on the country’s financial landscape.
The fuel prices increased by over 3%. Now, diesel costs 90.67 rupees per liter, while gasoline is at 97.77 rupees. These are the highest prices since May 2022.
India is the third-largest oil importer globally, heavily relying on imports from the Persian Gulf. Throughout a crisis, the government typically prioritizes consumers, who are very sensitive to price changes. However, the rise in fuel costs suggests that financial pressures are urging a reconsideration of this approach.
Experts like Radhika Piplani from Motilal Oswal Financial Services highlight that major state-owned refineries are losing around 10 billion rupees daily due to frozen fuel prices. Despite this increase, analysts predict a continuing gap of 15 to 20 rupees per liter on fuel sales.
Share prices for leading refiners fell significantly in early trading following the announcement. For instance, Hindustan Petroleum dropped by 2.9%, while Bharat Petroleum and Indian Oil saw declines of more than 1%.
On the private market side, prices are even higher. Gasoline at Shell stations exceeds 110 rupees per liter, and diesel is close to 120 rupees.
The Indian government, which owns a majority share in these fuel companies, has kept prices stable since March 2024. Despite state retailers having some freedom in setting rates, the government’s influence is a crucial factor.
Interestingly, diesel accounts for about 40% of India’s fuel consumption, while gasoline makes up over 17%. Fuel rates can vary significantly across the country due to local taxes.
This price increase follows a fuel tax cut in March aimed at aiding refiners, but it’s still not enough to cover ongoing losses. Macquarie Research states that refiners need crude prices to be around $80 to $85 per barrel to break even, yet Brent crude was trading at $107 per barrel on May 15.
Economists are concerned about inflation, especially with a weakening rupee and oil prices staying high. Some predict that India may face three consecutive years of balance-of-payments deficits.
Madhavi Arora from Emkay Financial Services suggests that this could be just the beginning. She believes more significant increases are likely ahead and that a hike of 5 rupees per liter would have been a better starting point.
Fuel price hikes have sparked reactions on social media, with some consumers expressing frustration over rising costs. Following regional elections at the end of April, many anticipated these increases. In fact, fears of higher prices led to some fuel stations running out of supplies, despite calls from Prime Minister Narendra Modi for citizens to conserve fuel.
With these rising fuel costs, all eyes will be on how this impacts consumers and the broader economy in the coming months.
For more information on global oil prices and market impacts, you can explore data from OECD and Bloomberg.
