India raises cost at fuel pump

By Archana Chaudhary  |   2008-6-5  |     NEWSPAPER EDITION

INDIA'S government raised retail fuel prices yesterday and reduced taxes to narrow more than US$50 billion of losses at refiners, risking fanning inflation that's at its highest in more than three years.

Prices of gasoline, diesel and cooking gas will be raised from midnight, Oil Minister Murli Deora told reporters in the capital. Shares of state-run refiners rose after the government scrapped import taxes and said they will receive 946 billion rupees (US$22 billion) as compensation for selling fuel below cost.

Prime Minister Manmohan Singh's government joins Indonesia and Sri Lanka in raising fuel prices after crude oil almost doubled in a year, reported Bloomberg News. Still, the measures will only reduce refiners losses by about US$10 billion, Oil Secretary M.S. Srinivasan said, or less than a fifth of the shortfall this year.

"The prices should have been raised higher for a real impact," said Ballabh Modani, Mumbai-based analyst with Enam Securities Pvt. "There's no point in ad hoc increases; the government needs to put in place an independent system for prices."

India caps retail fuel prices to control inflation. Yesterday's price rises may add between 0.5 and 0.6 percentage point to wholesale prices, according to Srinivasan. Oil prices reached a record US$135.09 a barrel on May 22, driven partly by speculation that fuel subsidies in Asia will spur demand.

Gasoline prices will be raised by 5 rupees a liter and diesel by 3 rupees, the minister said. Liquefied petroleum gas will be increased by 50 rupees for a 14.2-kilogram bottle.

Duties on gasoline and diesel were cut to 2.5 percent from 7.5 percent and on other oil products to 5 percent from 10 percent. Import duty on crude oil was scrapped from 5 percent.

Indian Oil Corp, the nation's biggest refiner, rose 2.2 percent to 443.4 rupees at 12:56pm yesterday in Mumbai. Indian Oil posted its first quarterly loss in more than two years on May 28 after subsidies failed to offset costs. Hindustan Petroleum Corp gained 3.7 percent to 256.7 rupees.