Hike less than expected: India Inc

Industry representatives today sought to play down the impact of the increase in petrol and diesel prices. Most said it was inescapable and its extent was actually less than what had been anticipated.

Costs will go up across sectors since 70 per cent of goods move on roads and a large number of goods trains run on diesel. However, people would accept it and move on, they felt.

According to a large manufacturing company's top executive, adulteration will become more rampant and keep the transport costs from rising too much.

"The fuel price hike would have, in the normal course, increased the operating costs. But because kerosene's price has not been increased, the adulteration of diesel will go up," he warned.

Hyundai Motors India's President BVR Subbu thought of this as a missed opportunity. "A Re 1 increase in the price of diesel can enable you to reduce the price of petrol by Rs 6. Thus, while an overall increase in oil prices was unavoidable, the government could have let off the petrol consumers completely and narrowed the gap between the two fuels," he said.

According to V Raghuraman, senior adviser with the Confederation of Indian Industry, the price rise is smaller than what should have been.

"In the United States, gasoline prices have doubled in the past one year. It will push up costs, but there was no option. Thankfully, inflation has been low in the past few weeks," he said.

A lot, he said, would depend on how the railways and roadways reacted to it, whether they absorbed most of it or passed on the burden to users.

Ganesh Arnal, adviser to the All-India Motor Transport Congress, said transporters would struggle to pass on much of the increase in costs in the short-term. "If the flow of funds into the used-truck business improves, the lower cost of used trucks should be able to off-set such price increase," he said.

Ashok Leyland Managing Director R Seshasayee did not foresee much of an impact on the commercial vehicle manufacturer's sales. "As long as the supply part of the fuel is steady, this price hike is not a reason for worry," he said.

The Federation of Indian Chambers of Commerce and Industry supported the Centre's decision on the principle of equitable burden-sharing by the government, oil companies and the consumer.

Given the sustained and substantial rise in international oil prices, a revision of retail prices had become "inescapable", Ficci said. Otherwise, some of the navratna PSU oil companies would have been deep in the red.

At the same time, the chamber urged the government to bring down the taxes on petroleum so that the impact on the consumer was minimised.

However, it appears that the hike will have a marginal impact on inflation, which is hovering around 4.22 per cent. The cascading effect of the hike in diesel will be limited as truck operators will not be increasing freight immediately.

"Our overall assessment is that inflation will be under control," Economic Affairs Secretary Rakesh Mohan told reporters today.

For the time being, the impact would be negligible, an increase in inflation by about 0.4 percentage points, but the secondary effects would come after a few months, said Saumitra Chaudhury, chief economist, ICRA.

The impact of the hike in diesel and petrol prices would be reflected in inflation for the week ending June 25, he added.

Chaudhury said the secondary effects depended on factors like whether transportation of food and material across the country became expensive or not.

Meanwhile, truck operators decided not to increase freight immediately. All India Motor Transport Congress (AIMTC) Secretary-General JM Saxena expressed the truck operators' inability in increasing freight any further.

"If we increase our freight, we stand to lose our business. This is because the Railways are not increasing their tariffs either," Saxena said.

He, however, added that the AIMTC would go on a nation-wide strike on June 28, opposing the increase in diesel prices. He also said the increase would hit the incomes of truck operators as they would not be able to pass on the burden to consumers.

Inflation based on the wholesale price index for the week ended June 4 was at a 21-month low of 4.22 per cent compared with 5.20 per cent a week before.

The index for diesel was 388 and that of petrol, 211. Petrol has a 0.8815 weighting in a basket of 100 commodities, while that of diesel, it is 2.02.

Therefore, a nearly-6 per cent increase in the price of petrol and about 8 per cent rise in the price of diesel will translate into a 0.4 percentage points increase in inflation.