India likely to raise retail fuel prices this week

India likely to raise retail fuel prices this week
Reuters Published: February 04, 2008, 23:31

New Delhi: India is likely to raise the retail price of petrol by Rs2 a litre and that of diesel by Rs1 a litre this week, a senior source at the oil ministry said yesterday, after weeks of complex discussions.

Such increases, which carry significant political risk for the government, would amount to a rise in petrol prices of 4.6 per cent, while diesel would cost 3.3 per cent more.

"The decision will be taken at a cabinet meeting this week," the official, who did not wish to be identified, said.

The cabinet usually meets on Thursday but can be convened earlier.

India forces state retailers to sell widely consumed fuels cheaply to protect poor consumers and help curb inflation and did not increase prices in 2007 even though the cost of crude rose by more than 50 per cent in the year and topped $100 a barrel.

Under pressure

The surge in the cost of crude forced China to raise prices by 10 per cent in November after refiners retreated from domestic marketing, causing the country's worst fuel crisis in four years.

Like Beijing, the government in New Delhi has been under pressure to review prices as losses at state-run oil firms mount.

The ministry official said no restructuring of duties on oil and its products were being considered.

Ministers have met regularly to discuss politically risky increases. But the ruling Congress-led coalition has hesitated to raise prices with state and parliamentary elections due this year and next, when it hopes to bag the votes of millions of poor.

Analysts have been expecting prices to rise for some time.

The Indian crude basket rose about 175 per cent between April 2004 and February 1 this year, but retail prices of petrol went up by just 29 per cent and those of diesel by 40 per cent in the same period.

yesterday, petrol in Delhi cost Rs43.52 ($1.10) a litre while diesel was selling for Rs30.48.

Leading state-run oil retailers including Indian Oil Corp, Hindustan Petro-leum Corp Ltd and Bharat Petroleum Corp say they have been losing millions of dollars a day due to the jump in crude prices.

The government issues bonds to oil retailers to cover 42.5 per cent of their revenue losses on fuel sales.

State-run exploration firms Oil and Natural Gas Corp and Oil India Ltd, and gas firm GAIL (India) Ltd together bear another 33 per cent of the revenue loss burden.

The remainder is borne by the oil retailers.