Gasoline and diesel prices have risen in India after a four-month freeze. Fuel prices were put on hold on November 4 last year ahead of elections in five states.
India imports nearly 85% of its fuel needs and spiraling global crude prices spiked by the Ukraine crisis are now forcing fuel retailers to pass on the higher prices to consumers.
The prices were hiked by 80 paise and judging by past trends many more such marginal hikes are expected in the coming days and weeks. Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp are the major fuel retailers in India.
Domestic cooking gas prices have also been hiked by nearly 50 rupees a cylinder.
All of this is bound to cut discretionary household spending in middle and lower-middle-class families as fuel prices push up the prices of other items and services including transport. Higher inflation comes as the country’s unemployment rate is still in the double digits.
Cost price inflation has already crossed the Reserve Bank of India’s upper threshold limit of 6%. In the month of February, it reached 6.07% and in January was 6.01%.
More worrying, the wholesale price index was 13.11% year-on-year in February and has remained at the double-digit level for 11 consecutive months.
Consumer goods companies are already contemplating price hikes due to a steady increase in commodity prices such as wheat, palm oil and packaging materials. The new round of fuel hikes will leave them with few options but to hike their prices.
Former World Bank chief economist Kaushik Basu had earlier warned that India faced stagflation risks and that prompt policy interventions were required to address the situation. He said the economic recovery has been concentrated at the high end of society, while the bottom end was facing recession.
However, Reserve Bank of India Governor Shaktikanta Das has allayed concerns arising out of the Ukraine crisis. He said the country’s foreign exchange reserves were at 5.15 trillion rupees ($677 billion) and it can deal with any spillover effect and comfortably finance the current account deficit.