Petrol, diesel prices: The not so curious case from Gujarat to Karnataka polls

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Updated: May 14, 2018 5:22:07 PM

As soon as Karnataka polls were over, the petrol and diesel price returned back to dynamic pricing with a whopping hike of 17 paise and 23 paise respectively, after being on a 19-day-long freeze even as international crude oil prices kept rallying.

From Gujarat to Karnataka polls: The not so curious case of petrol, diesel pricesAs soon as Karnataka polls were over, the petrol and diesel price returned back to dynamic pricing. (Image: Reuters)

As soon as Karnataka polls were over, the petrol and diesel price returned back to dynamic pricing with a whopping hike of 17 paise and 23 paise respectively, after being on a 19-day-long freeze even as international crude oil prices kept rallying. Lest we forget, a similar trend was seen ahead of Gujarat elections too.

Ahead of the Gujarat polls, oil companies slashed petrol and diesel prices daily 1-3 paise every day, and as soon as the polls concluded on 14 December 2017, the prices began going up. The petrol and diesel prices were slashed or kept unchanged between December 6 and December 14 even as international oil prices were on a rising streak.

Experts say deferring a fuel price hike in the run-up to elections is an oft-repeated practice, as against letting petrol and diesel prices completely free. “Fuel price freeze was more a case of deferment as, during the run-up to the election, you try not to anything anti-people as it might go against the electorate,” Madan Sabnavis, Chief Economist, CARE Ratings told FE Online.

“However, the (upward) correction in fuel price was as per expectations as economic rules come into force once polls are over,” he said, adding: “We have seen it happening in the past too.”

Fuel price in India was deregulated in 2010 and, since then, oil companies have been revising the prices according to market dynamics. From 16 June 2017, the oil companies began revising fuel prices daily instead of fortnightly. While international oil prices are not the sole factor taken into consideration while fuel price revision back home, it certainly is one of the biggest factors.

An oil analyst told PTI that in the last week of April, had the oil companies followed in “letter and spirit”, petrol and diesel prices would have increased by 50-60 paisa a litre in a week. A Bloomberg report on April 11 claimed that the government had asked oil companies to absorb a part of the losses, which was declined by both the government and oil companies.

However, between April 24 and May 13, the fuel prices were kept frozen. Indian Oil Corporation chief denied any links between the price freeze and the polls. Sanjiv Singh said the decision of oil PSUs to not hike petrol and diesel prices was aimed at stabilising them and it “incidentally” coincided with Karnataka election.

As soon as the oil companies hiked fuel price on Monday, it received sharp criticism from the opposition. Former finance minister and senior Congress leader P Chidambaram said that the Karnataka election was only an interval to the tax burden on consumers.

So far, the governments — both central and state — have remained non-committal to provide a cushion against rising oil prices. Last October, the Narendra Modi government announced a cut in excise duty of Rs 2 a litre on both petrol and diesel. It was followed by four states cutting retail VAT. However, the cushion did not last long.

The petrol and diesel prices remain significantly higher due to high excise duty being levied by the central government. The excise duty was hiked on petrol by Rs 12 per litre and on diesel by Rs 13.77 per litre between April 2014 and October 2017.

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