Living with oil price hikes

It seems there is no respite for the Indian consumer (especially the middle-class) from back-breaking inflation with the latest hike in oil (petrol and diesel) prices coming into effect from 04 November, 2011. There is some noise in the media about a partial rollback, though something like that seems highly unlikely despite the fact that international crude oil prices have softened of late.

If we look at the situation dispassionately, the reasons for this recurring phenomoenon are not difficult to comprehend. India imports about 79% of its oil and the sharp depreciation in the value of rupee against the greenback has offset the gains from the softening of crude oil prices internationally. The rupee has dipped from Rs. 46.29 to a dollar at the time of the last hike (on September 16) to Rs. 49.40 making oil imports costlier.

To put things in perspective, a change in the value of the dollar by one rupee leads to a loss of 90-95 paise per litre of petrol.The Indian consumer has become used to (rather fed up with) frequent interest rate and oil price hikes. Both burn a hole in her pocket. The Opposition along with the Left have decided to take the government to task as the latter battles to save its face in the wake of rampant corruption and a slowing economy. The interesting thing to note here is the withdrawal of support by UPA allies like Trinamool Congress lately.

According to Jayati Ghosh, the prominent Left-leaning JNU-based economist, an increase in oil prices will not just have a direct effect on prices (estimated by the Finance Ministry to add just below 1 per cent to the existing rate of inflation). It will also have a cascading effect – as all goods have to be produced using some energy, usually oil or equivalent, and then transported, so all of their prices will increase subsequently. So the country will have to face a further onslaught of inflationary pressure which is this time entirely policy-induced.

However, chairpersons of state-owned oil marketing companies have enough justification to hike the oil prices citing rupee depreciation. The government had decontrolled petrol pricing in June last year and given oil companies freedom to fix rates at retail level.

All this leaves the common man with a heart full of discontent which might have electoral repercussions in the future. However, for the time being the only avenue at his disposal is increased usage of public transport.The only people cheering at this scenario will be the ecofriendly green campaigners!