With the rupee falling against the US dollar, the government is under immense pressure from oil companies to increase the quantum of the hike in the prices of diesel and domestic cooking gas (LPG).
Diesel prices may be raised by R1 to R1.5 per litre and LPG prices may be increased by R30 to R50 per cylinder to cushion the heavy losses of oil companies on the sale of diesel and cooking gas (LPG).
Moreover, global crude oil prices have gone up substantially. The Indian crude oil basket that stood around $100 a barrel on June 30 is ruling over $104 a barrel.
As reported first by HT on July 4, oil companies have already proposed a one-time hike of R2-3 a litre in diesel prices as under-recoveries (or losses on sale) have crossed R10 a litre following the rupee’s sharp fall against the US dollar.
But oil company sources said the hike will be passed on only after the government clears it.
“With elections less than a year away, the government is wary of any drastic step,” said a senior petroleum ministry official seeking anonymity. "The issue is being deliberated at the highest level in the government and will need a cabinet nod."
This is due to inflationary impact that a hike in diesel price can have on the consumer price of other commodities. If diesel price goes up, your food, power and transportation bills will automatically rise, stoking public fury.
The price of diesel was raised by 50 paise per litre on July 1 -- the sixth hike this year. Under an existing plan, oil companies are allowed to keep raising it by 50 paise per month till the subsidy is wiped out.
The price of diesel has gone up by R5.7 per litre (including taxes) this year. But the depreciation of the rupee – from 54.33 per dollar in January to 61.21 on Monday – has thrown that plan out of gear.