Indian consumers face post-election fuel price shock

Surging global oil prices will pose a first big challenge to India’s new government, whoever wins an election now under way, especially as domestic prices have been allowed to lag, meaning consumers are in for a painful surge as they catch up.For oil-import dependent India, higher global prices could lead to a weaker rupee, higher inflation, the ruling out of interest rate cuts and could further weigh on twin current account and budget deficits, economists warned.But compounding the future pain, state-run fuel suppliers and retailers have held off passing on to consumers the higher prices during a staggered general election, which began on April 11 and ends on May 23, according to sources familiar with the situation.That delay is expected to be unwound once the election is over.And there could be additional price increases to make up for losses or profits missed during the period of delayed increases, the sources said.In some major Asian countries, such as Japan and South Korea, pump prices are adjusted periodically so they move largely in tandem with international crude prices.That was what was supposed to happen in India but the election means there have been many days when pump prices have been unchanged.In New Delhi, for example, while crude oil prices have gone up by nearly $9 a barrel, or about 12%, in the past six weeks, gasoline prices have only risen by Rs0.47 a litre, or 0.6%. State-controlled fuel suppliers and retailers declined to say why they had delayed price increases, or discuss whether there has been any pressure from the government of Prime Minister Narendra Modi.The opposition Congress party said Modi’s government was violating its own policy of daily price revision by advising the state oil companies to hold prices steady.“The government should cut fuel taxes otherwise consumers will have to pay much higher oil prices once the elections are over,” said Akhilesh Pratap Singh, a senior leader of the Congress party.Nitin Goyal, treasurer at the All India Petroleum Dealers Association, representing fuel stations in 25 states, said prices were similarly held down for 19 days in the southern state of Karnataka last year, when it held state assembly elections.Only for them to surge after the vote.“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,” Goyal said.Sri Paravaikkarasu, director for Asia oil at Singapore-based consultancy FGE, said retail prices of gasoline and gasoil prices would have been up to 6%, or about Rs4, higher if they had been allowed to rise in line with global prices.“Indian pump prices have failed to keep up with the recent uptrend in crude prices,” Paravaikkarasu said.India had switched to a daily price revision in June 2017 from a revision every two weeks, as the government allowed retailers to set prices.But the government faced protests last October when retailers raised prices by up to Rs10 a litre after the crude oil price went above $80 a barrel, forcing it to cut fuel taxes.Policymakers are worried that a sustained increase in the oil price in the range of $70-75/barrel or higher can move the rupee down by 3-4 % on an annual basis.The rupee has depreciated by 1.24% against the dollar since a year high in mid-March.