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Petrol price hike evokes mixed reactions from industry

Last Updated: Wednesday, May 23, 2012 - 22:44

New Delhi: The steep hike in petrol prices on Wednesday evoked mixed reactions with a section of industry saying the move would further burden the comman man even as policy makers and experts felt the increase would benefit the economy in the long run.

Industry body Assocham said the hike would be another blow to the already crippled economy.

"This step will increase inflation and prove a big burden on the common man," the chamber said, adding that an increase in petrol price is not likely to give much relief to the government's swelling fiscal deficit.

The automobile industry too hit out at the price hike, saying the increase would hurt the sector which is already reeling under a slump.

"Petrol cars are not selling as such already. With this record hike, the situation will go from bad to worse," Society of Indian Automobile Manufacturers (SIAM) Senior Director Sugato Sen told reporters.

Planning Commission Member Abhijit Sen said the hike was due to declining value of rupee, which on Wednesday incidentally breached the 56-level against the US dollar.

"It will have immediate impact on prices, but will not have knock-on impact on prices. This in one time price adjustment. It will not have cascading effect" Sen told reporters.

Expressing similar opinion, Crisil chief economist D K Joshi said, "Petrol does not have much impact on wholesale price based inflation as it does not have much weight in the index.

"It is not like diesel which is a transport fuel. The impact will be muted. But the increase has been very sharp. I think the WPI inflation will be impacted below 15 basis points", he said.

Welcoming the petrol price hike, another industry body FICCI said that government should also deregulate the prices of other fuel products like kerosene, diesel and cooking gas.

"Rationalisation of petroleum products prices will provide the necessary incentives for the development of alternative and renewable sources of energy; encourage conservation; and more important improve the fiscal balance," FICCI said.

The chamber said the increase had perhaps become inevitable with the continued slide in rupee value and "it can be mitigated by reduction in taxes both by the central and state governments".

SMC Global Securities, Head of Research, Jagannadham Thunuguntla said the hike would benefit the state-run oil marketing companies.

"The government may think of diesel price deregulation following this as Parliament session is over," he added.


First Published: Wednesday, May 23, 2012 - 22:44
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