NEW DELHI, 7 September 2005 — India’s federal Cabinet raised gasoline and diesel prices by about seven percent yesterday, the second time in three months to offset a surge in global oil prices, Press Trust of India said.
The price of gasoline will rise 7.4 percent to 43.49 rupees per liter in the capital New Delhi while diesel will cost 7.0 percent more at 30.45 rupees, Oil Minister Mani Shankar Aiyar told PTI. “The hike will be effective at midnight tonight,” Aiyar said.
Gasoline and diesel prices will rise by a similar amount across the country depending on local tax rates, he said.
However, the government declined to raise the prices of heavily subsidized liquefied petroleum gas and kerosene, widely used by the poor for cooking, Aiyar said.
Analysts said the failure to raise prices on gas and kerosene could increase the government’s subsidy burden.
“Despite our subsidy bill being very large and getting larger on these two products, there is actually no sign of any impending realignment of the subsidies or reduction of subsidies,” said Sanjeet Kumar Singh, vice president of Indian investment bank ICICI Securities.
On June 20, India raised gasoline and diesel prices by about the same amount but oil companies have complained that the price of crude oil has continued to soar.
World crude oil prices have risen by more than 50 percent since the end of 2004 and crossed $70 a barrel last week before dipping on an announcement that the United States would release emergency supplies to offset loss of production from Hurricane Katrina.
“I would say that there is a possibility to correct further but if you are looking two to three months ahead or thereafter I would tend to believe that we are in for a sustained period in the vicinity of $60,” Singh said.
India imports more than 70 percent of its energy needs but has been reluctant to raise prices for refined products for much of the past year because of political opposition.
“They should have made changes last year but since they didn’t do it, the past catches up with you,” said Saumitra Chaudhuri, an economic advisor at ICRA Limited, an investment information provider.
Both analysts said the hike in oil prices was unlikely to have a drastic effect on the economy’s growth or on inflation, which hit a two-year low in August at 3.94 percent after soaring to a three-and-a-half year high above eight percent in 2004.
They also called the current hike a needed correction and said they would not be surprised to see an additional increase later in the year.
“Of course we’ll see one. Maybe we’ll see two,” said Chaudhuri. “There’s a political disinclination to raise the prices by say five rupees so you get a hike for two rupees, then another one for two rupees, in bits and dribbles,” he added.
