Indian state-run oil firms Wednesday announced the sharpest hike in petrol prices in nearly a decade to offset growing losses caused by subsidised rates, rises in the international oil price and a plunging rupee. The increase was put at 6.28 rupees (11 US cents) per litre which, when taxes are included, will mean a 7.5-rupee hike for consumers in cities such as New Delhi from Thursday.
The need for an urgent and substantial rise had been flagged by senior ministers in recent weeks, but is still likely to result in a major political fallout for Prime Minister Manmohan Singh's coalition government. The Congress-led government deregulated petrol prices in 2010 in a reform aimed at reducing the massive subsidies it pays to state-run fuel refiners which rely on imported energy.
A series of much smaller petrol price increases last year caused an internal revolt, with the second-largest party in the coalition threatening to pull out unless the price hikes were rolled back. In a statement, the country's largest refiner, Indian Oil Corp, said it had been "compelled" to hike the price after sustaining losses of 10.5 billion rupees ($188 million) since the start of the current financial year, April 1.
The main opposition Bharatiya Janata Party (BJP) moved quickly to criticise the increase, and warned that it could lead to public protests. "This petrol price hike is clearly unreasonable, arbitrary and is condemned as it will put further inflationary pressure and lead to further rise in prices," BJP spokesman Ravi Shankar Prasad told reporters. India imports more than three-quarters of the crude oil it requires, and the import bill has risen dramatically because of high global prices and a plunging rupee.
The Indian currency sank to an all-time low against the dollar for the sixth straight day Wednesday, breaching the 56-rupee mark for the first time The high cost of imported fuel is partly blamed for the ballooning of India's current-account deficit - the gap between exports and goods and services imports - to its widest level in eight years. Last month, Standard and Poor's cut India's credit rating outlook to negative from stable, citing the country's high deficits as partly to blame, and warned of a one-in-three chance it would lose its investment grade status.
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