Impact of Fuel Price Deregulation in India
Impact of Fuel Price Deregulation in India
Introduction
Empowered group of Ministers on Friday, 25th June 2010, took a decision to decontrol the petrol prices increasing it by 3.50 per litre & that of kerosene by Rs 3 a litre. While petrol is mainly used by the middle class for cars, kerosene is used by the poor for power.
Diesel prices rose by Rs 2 per litre and might be freed up in the future. Cooking gas prices were raised by Rs 35 a cylinder.
Govt. has indeed taken a bold step by deciding to decontrol prices of Petrol & increase the prices of Petrol, diesel and Kerosene prices. However, this move of UPA govt. is likely to have some implications. In these tough times, when, rising inflation is a continuous cause of concern, political parties that are eagerly waiting for opportunities to exploit it to their advantage and common man who is likely to be feel the pinch most, it is going to be tough for govt. to handle so many issues simultaneously.
Implications of Petrol Price Decontrol & Increase in prices of other fuels
Impact on Inflation
Given the fact that, petrol and Diesel are the main fuel for the movement of goods, inflation is very much likely to increase. Most of the essential commodities such as pulses, vegetables and other cereal items are likely to become expensive due to increase in the transportation cost. Also the price of cooking gas has also gone up by 35 Rs. per 14.5 kg cylinder. All this is likely to inflict pain to a common man who is already bearing the brunt of high inflation this year.
Though it is very difficult to gauge the impact of inflation due to these prices rise but as per the finance ministry's chief economic adviser, Kaushik Basu, the price rises would impact headline inflation (WPI) by 0.9 percentage points but will result in lower fiscal deficits. The increase in the inflation would be short term and in six months the inflation would be lower despite index reflecting international prices. The total projected impact on
Introduction
Empowered group of Ministers on Friday, 25th June 2010, took a decision to decontrol the petrol prices increasing it by 3.50 per litre & that of kerosene by Rs 3 a litre. While petrol is mainly used by the middle class for cars, kerosene is used by the poor for power.
Diesel prices rose by Rs 2 per litre and might be freed up in the future. Cooking gas prices were raised by Rs 35 a cylinder.
Govt. has indeed taken a bold step by deciding to decontrol prices of Petrol & increase the prices of Petrol, diesel and Kerosene prices. However, this move of UPA govt. is likely to have some implications. In these tough times, when, rising inflation is a continuous cause of concern, political parties that are eagerly waiting for opportunities to exploit it to their advantage and common man who is likely to be feel the pinch most, it is going to be tough for govt. to handle so many issues simultaneously.
Implications of Petrol Price Decontrol & Increase in prices of other fuels
Impact on Inflation
Given the fact that, petrol and Diesel are the main fuel for the movement of goods, inflation is very much likely to increase. Most of the essential commodities such as pulses, vegetables and other cereal items are likely to become expensive due to increase in the transportation cost. Also the price of cooking gas has also gone up by 35 Rs. per 14.5 kg cylinder. All this is likely to inflict pain to a common man who is already bearing the brunt of high inflation this year.
Though it is very difficult to gauge the impact of inflation due to these prices rise but as per the finance ministry's chief economic adviser, Kaushik Basu, the price rises would impact headline inflation (WPI) by 0.9 percentage points but will result in lower fiscal deficits. The increase in the inflation would be short term and in six months the inflation would be lower despite index reflecting international prices. The total projected impact on
References: 1. BS Reporter(2010), “Govt. frees petrol, diesel prices” Business Standard, New Delhi, June 26. 2. BS Reporter(2010), “Fuel Prices rise: Inflation go up, but effects uncertain” Business Standard, New Delhi, June 26. (Impact on WPI) 3. Vikram Khemnai (2010), “Gutsy as well as Powerful Reforms” Business Standard, New Delhi, June 29 4. Reuters(2010), “full diesel decontrol to spur prices”, Financial Express, June 30. 5. Accessed on 04/07/2010 “Kirit Parikh panel wants cooking fuel prices raised”, http://www.thehindubusinessline.com/2010/02/04/stories/2010020453250100.htm 6. Accessed on 04/07/2010, “Q&A: Kirit S Parikh, former Planning Commission member: 'Deregulation will not cause inflation ' Suveen K Sinha / New Delhi June 26, 2010, http://www.businessstandard.com/india/printpage.php?autono=399452&tp= 7. http://www.hindustantimes.com/India-back-on track-after-a-day--strike/Article1-568274.aspx 8. www.rbi.com