Kamal Ghorui
Uneasy lie heads burdened with crowns. More so when US and Iran are trading fire again, crude is inching up, and rumours of petrol and diesel price hikes are swirling. For the incoming CMs of Kerala, TN and Bengal, plus Himanta in Assam, this isn’t the best time to start an innings. Vijay, TN’s prospective CM, has promised households six free LPG cylinders per year. If domestic LPG follows the 48% hike in commercial LPG rates, TN’s subsidy bill will rise by a few thousand crores. Himanta has also promised two LPG refills per household, per year.
The Iran war is equally a headache for Centre, which must balance the rising import bill with risk of inflation. Early in March, unnamed govt sources had suggested fuel prices wouldn’t rise until crude crossed $130. It hasn’t crossed $126 so far, and on Tuesday, despite Iran’s attack on Fujairah in UAE, it was at $113. Maybe, it’s not time to pass on the cost to customers yet. Also consider the consequences of a hike. A 10% increase in pump prices is estimated to push up inflation by 0.5-0.6 percentage points. Now, when analysts see inflation touching 5.2% this fiscal, even a small fuel price hike could push it too close to RBI’s 6% upper limit.
Beyond abstract numbers, higher diesel prices would push up cost of transportation, making everything costlier. And higher petrol prices could dent demand for private vehicles, which picked up pace last Oct, only after a generous GST cut. In US and Europe, higher fuel prices have boosted interest in EVs, but India isn’t ready for a wholesale switch to electrics yet. Meanwhile, vehicle sales are a significant contributor to Centre and state revenues. So are fuels. In fact, between 2021-22 and 2024-25, Centre and states together earned more than ?30L crore from petrol and diesel sales. Crude fell in that period, but pump prices didn’t. Hence, there’s a case for govt to continue bearing the increased cost of crude for some more time. Blockade of Hormuz is a global problem, and it can’t continue indefinitely. But inflation resulting from higher pump prices would be India’s problem alone, and bringing it under control could take months, or years, with secondary costs like higher interest rates and slower growth.
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