Government holds firm, hike in petrol price to stay

The government kept a studied silence on Thursday, leaving state oil companies to defend the biggest-ever increase in petrol prices, a decision that poses a fresh test to the Congress-led UPA's ability to hold its ground while taking tough but unpopular decisions.

As the Rs 7.50 per litre increase on Wednesday drew widespread condemnation from allies and opposition parties, a parade of oil companies took the stage to defend the action and ruled out an immediate rollback despite the mounting clamour for doing so, including from within the Congress party. "There is no pressure from the government to roll back the petrol price hike," said RS Butola, chairman of Indian Oil Corp, the country's biggest oil refiner.

However, another executive indicated that prices could come down early next month. "If the trend (for crude oil prices) continues and rupee appreciates, we expect a price cut. Probably on June 1, there could be a price revision. The trend is such that the revision could be downwards," said HPCL Chairman & MD S Roy Choudhury.

State oil companies are empowered on paper to set petrol prices, but in practice they do the oil ministry's bidding. Despite rising crude prices, they held off raising rates since the start of this year; first, because of assembly elections in five states, and later, to ensure smooth passage of the Finance Bill. Wednesday was the first day after the budget session.

A meeting of the empowered group of ministers on petroleum due on Friday also appeared to have been postponed at the time of going to press, which some said was a signal the Centre could hold off reversing the price increase for some more days and relent with a partial rollback later. But the postponement of the meeting will push back a bigger reform measure - the decontrol of diesel prices - for now.

Taxes on Petrol

Petrol Price Hike Break-up

Impact due to international price - Rs 5.12/litre

Impact due to rupee depreciation - Rs 1.16/litre

Total increase in exclusive of state levies - Rs 6.28/litre

Revnue loss on regulated fuel products

Diesel - Rs 13.64/litre

Kerosene - Rs 31.41/litre

LPG - 479/cylinder