Daily Management Review

Post-Election Indian Economy May Encounter A Shock In Fuel Price Hike


Economists inform that the Indian consumers may need to brace themselves to experience a “painful” increment in fuel prices.

The soaring price of oil at a global platform could be a looming challenge for the new government of India to tackle. India is carrying out an election while the country has allowed the “domestic prices” to lag, so the consumers may brace themselves for a “painful surge” to catch up.
India is dependent on oil imports, while the higher price across the globe could weaken rupee, result in “higher inflation”, whereby ruling the “interest rate cuts” and weighing on “twin current account and budget deficits”, warned economists.
However, what could worsen the future woe for India, is the retailers and suppliers run by the state held on the higher prices and did not pass them on to the consumers during the “staggered general election” that began on April 11 and is scheduled to end on May 23.
Once the election phase comes to an end, the delay in the higher prices of oil reaching the consumers may come with its backlog. In some countries in Asia, like “Japan and South Korea”, the “pump prices are adjusted periodically” to keep them in tandem with the international pricing of crude.
However, given the election scenario in India, the pump prices remain unchanged. For example, in New Delhi, the price of crude oil got a hike to almost “$9 a barrel”, whereby marking a 12% hike in the last six week, whereas the gasoline price only increased by 0.6% to “0.47 rupees a litre”.
In fact, last year similar situation occurred during the assemble election for the state of Karnataka in South India and post election period the consumers had to witness a price surge. In the words of Nitin Goyal, who is “treasurer at the All India Petroleum Dealers Association”:
“Consumers should be ready for a rude shock of a massive jump in retail prices, similar to the level we have seen in the Karnataka state election”.
The “Indian arm of the Fitch rating agency”, ICRA stated in a note:
“The increase in international oil prices is a credit negative for the Indian economy”.
“Every $10/ bbl increase in crude oil prices increases the fiscal deficit by about 0.1 percent of GDP.”