CHENNAI: Unless taxes are reduced on fuel or oil marketing companies begin to shed their marketing margins, Indian fuel consumers are staring at even higher petrol and diesel prices over the next few months.
On Thursday, Brent crude oil prices, which have been on a steady upward march since October last year, hit a two-year high of $71.99 per barrel during trade—and analysts expect this figure to continue rising over the next few quarters.
For consumers, this means hikes in the retail prices of fuel far past even their current all-time highs. Petrol in New Delhi was being sold at Rs 94.49 per litre and diesel at Rs 85.38. In Chennai, rates stood at Rs 95.99 and Rs 90.12 respectively.
While Brent prices have surged by 39 per cent since the beginning of the year, India’s OMCs had held prices steady for 65 days during the campaigning season for key state elections this April.
However, this resulted in a significant hit on their marketing margins (the amount of money earned by selling a litre of fuel), with some OMCs recording their lowest margins in nine quarters at Rs 3.5 per litre.
Post-poll hikes, however, have brought OMC margins up and the rise in crude prices is being reflected in near-daily increases over the past few weeks.
To be sure, the biggest component of fuel retail prices are central and state government taxes, which constitute upwards of 60 per cent of the selling price of petrol and 54 per cent for diesel.
However, government officials and economists note that major duty cuts are unlikely this fiscal year due to the strained position of the exchequer.
If taxes cannot be reduced, some analysts expect the OMCs to begin taking pressure on margins again.
“Unless the Centre and State governments cut excise and VAT rates PSU OMC would be constrained in passing on further price hikes in the retail market. This is owing to the already high prices and a backlash from consumers,” ICRA wrote in a note.