The cost of crude oil has averaged $105.4 per barrel so far in May, putting significant pressure on Indian fuel prices. On Friday, Brent crude hovered near $100 a barrel, while the Indian oil basket was priced at $99.69 a barrel. The rupee cost has further increased due to the currency's weakening against the dollar.
Impact on Oil Companies and Government
"Oil companies are purchasing costlier oil and gas from the global market, but selling fuel at lower prices. It is impacting their finances. That's why the government reduced the excise duty on petrol and diesel, which is costing it Rs 14,000 crore a month," said Sharma. Officials noted that losses were not sustainable indefinitely, especially amid projections that prices would remain elevated for at least four months, even if a permanent ceasefire was announced now.
While the government has cut excise duty on petrol by Rs 13 a litre and on diesel by Rs 10, it has limited headroom. The government will also have to bear the subsidy on domestic cooking gas cylinders.
Expert Opinions on Price Adjustment
G Krishanakumar, former CMD of Bharat Petroleum, stated, "India is going to remain a fossil fuel-dependent economy until a very strong renewable energy base is created. To manage this transition, oil companies need to invest. They cannot do that with weak balance sheets. While the government has done an excellent job in managing the situation, it can only pad up for some time and there is a need to raise prices. After all, most countries have increased prices since the war started. We can look at innovative ways, such as a daily increase in small amounts, whose impact will not be felt by consumers."
Former HPCL chief SK Surana added, "Companies do have under-recoveries; the earlier it gets settled, the better. But the government will have to bear in mind the impact on the macroeconomy and consumers."
Inflation Concerns
The government and oil companies will have to decide on the extent of the increase. A steep rise in petrol prices will stoke headline inflation, with retail inflation currently at 3.4%. The balancing act between ensuring oil companies' financial health and protecting consumers from inflation remains a key challenge.
