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Economy

Fuel Prices might go up by midnight?

I spoke too early. I assumed in my first post that Fuel Price hikes due to the reintroduction of duty on Crude and Refined products will not immediately translate to higher retail prices because there still was an administered price mechanism (APM) meaning the government controls the prices.

The talk of the Kirit Parekh committee report implementation – to deregulate and free oil prices – is only talk; the government will still regulate prices.

I assumed that the higher price incurred by the oil companies due to this duty would be paid back by subsidies; this is of course a stupid way to do things, to first increase a tax on something and then pay the excess back through another route. Earlier it was a way to make the fiscal deficit look better – since the duty was “revenue” and the subsidy was “off balance sheet” by issuing it in bonds of a specific sort. Unfortunately people have not been falling for it, so the FM decided this year to take the subsidy in by paying in cash, not bonds. So everything is on the balance sheet.

So Moneycontrol says the government “is set to” increase fuel prices by midnight tonight. In the larger scheme of things, it’s good; hiding these fuel price subsidies was going to hurt us anyhow. But the difference – Rs. 2.71 on petrol and Rs. 2.55 on diesel – will surely impact food inflation, which was just set to have gone violently down because of a reasonably good harvest this year. Sometimes I think the government wants the inflation – that promotes GDP growth to a large extent, and hey, there are not many elections this year.

Stay tuned; an official announcement is likely to be out soon.Note that I don’t yet know if this is happening – I’m just relaying news.

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