Steep petrol price hike in the offing?

With elections in five states out of the way, the government-run fuel retailers on Monday ratcheted up their demand for an increase in petrol prices by as much as Rs 5 a litre. The demand could leave the government with a political cleft stick, coming on the day Congress received a severe drubbing in the assembly polls.

Piling losses of state-run firms appear to leave little choice for the Centre but to allow some hike, perhaps Rs 3 a litre or so. But the jury is still out whether it will have the guts to bite the bullet just ahead or during the Budget session of Parliament scheduled from March 12 for fear of drawing flak from emboldened allies and resurgent regional parties like Trinamool and SP.

Officially, the state-run fuel retailers are free to revise petrol price in tandem with the fuel's rates in regional bulk markets. But in practice, they do not move without an informal cue from parent oil ministry - the majority shareholder.

After the fuel retailers last revised petrol price on December 1, when the fuel was at $109 per barrel in regional bulk markets, the ministry waved the red flag against further tinkering in view of ensuing assembly polls. The bulk prices have since topped $130 a barrel, making the companies lose more than Rs 5 on a litre of petrol.

As a result, the state fuel retailers are estimated to have accumulated a loss of over Rs 5,000 crore in the fiscal - Rs 900 crore since the last revision in December. The government would not compensate this loss since petrol is outside the ambit of its pricing controls, unlike diesel and kitchen fuels.

While the government may still give the go-ahead for an increase in petrol price under the plea that it does not have any say on the fuel, it may find revising diesel and kitchen fuels much more difficult. If at all, such a revision would happen only after the budget session, by which time the political dust kicked up in the assembly polls are expected to settle.