In a move replete with political repercussions, the Indian government hiked the price of diesel fuel by Rs. 5 per litre, making it the biggest hike ever recorded in the economy. From now on, the diesel will cost Rs. 46.94 per litre (comprising local taxes) in the National Capital and a surge in the public transport costs is imminent as the hike will hit transport sector the most.
Citing the government’s mid-term growth projections, the economists are affirming that the hike will help us avert an economic catastrophe. Further, the hike will assist the government in recouping for the slack that has hit the incomes in most sectors of the Indian economy.
The hike decision in diesel fuel was expected with the Oil Ministry hinting about it in the first week of September 2012. The price of diesel was increased in June 2011 and the ever increasing prices of international crude oil along with the increasing deficit between the actual and subsidised fuel rates were instrumental in the latest hike. The government markets the fuel in the country with the help of state owned oil companies like ONGC, GAIL and OIL, which then sell the fuel at a price lower than its actual cost. The Indian government then reimburses the oil firms with excess cost according to the subsidy levied.
Commenting on the government’s decision, Arvind Mayaram, Secretary, Department of Economic Affairs, said the hike in diesel prices was a “difficult but necessary decision.”
In addition to the hike, the government has also withdrawn the subsidy on the branded diesel fuel, which will be sold at market rates from now on. Interestingly, the government refrained from hiking the prices of petrol by curtailing excise duty by Rs. 5.50 per litre. The petrol minded Indians must be taking a sigh of relief and the tide may just get balanced in the domestic passenger car market, which saw an unexpected shift towards the diesel cars. The sales of petrol-fuelled vehicles dipped while those of diesel boomed in the current fiscal.
