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Anupama Airy , Hindustan Times
New Delhi, July 03, 2013
The depreciation of the rupee may soon pinch you much harder than you had anticipated.

Oil companies, which are losing Rs. 8.10 per litre of diesel, want the government to go in for a one-time hike of Rs. 2-3 per litre to rein in their losses.

But the government is wary of such a move. “With elections less than a year away, the government cannot take such a drastic step,” said a senior government official seeking anonymity.

The fear: If diesel prices go up, your food, power and transportation bills will automatically rise, stoking public fury. The dilemma: if it doesn't increase diesel prices, its subsidy bill will balloon. Result: its deficit will rise, placing a strain on the economy and hurt growth prospects.

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Diesel prices were raised 50 paise per litre on Monday — the sixth hike this year. The plan was to keep raising it by 50 paise per month till the subsidy is wiped out. Diesel prices have gone up by Rs. 5.7 per litre (including taxes) this year. But the depreciation of the rupee — from 54.33 per dollar in January to 60.27 on Wednesday — has thrown that plan out of gear.
 
Sources in the petroleum ministry said the oil companies' proposal for a one-time increase of R2-3 per litre of diesel has been sent to "higher government authorities". “The petroleum ministry does not take pricing decisions; the Cabinet does,” the official said.

Every Rs. 1 depreciation against the US dollar increases losses on sale of diesel by 76 paise per litre. The total under-recoveries of oil companies on diesel sales for the current year have been estimated at R63,000 crore, which is a huge strain on the public exchequer.

Another hike in diesel prices — part of the scheduled monthly increases — by 50 paise per litre is expected anytime soon.