With the Brent variety of crude oil’s price falling below $100 a barrel for the first time since October 2011 on a slowing Chinese economy, hopes of some relief on the petroleum subsidy burden have revived in India.
However, the depreciating rupee works in the other direction, as crude oil is traded globally in dollars.
Oil prices fell a little more than three per cent today, with Brent crude to a nearly 16-month low. Weak US jobs data, poor Chinese manufacturing figures and the euro zone’s debt crisis prompted a cross-market selloff.
The benchmark Indian crude oil basket was about $4 lower at an average of $105 for the fortnight ending May 31, compared with the previous fortnight. However, the rupee fell by Rs 1.95 against the dollar during the same period, according to India government data released today.
Interestingly, when the retail prices of the three controlled fuels — domestic LPG, diesel and kerosene were previously in June 2011, Indian crude oil was averaging in the same range. The government did not allow the oil marketing companies (OMCs) to pass on the full impact of increased global prices.
The OMCs -- they postponed a review of the retail price for petrol, after raising it by a little over 10 per cent last week — are waiting for a government decision on diesel, kerosene and LPG. The government’s inability to pass on any rise in international prices on a sustained basis has meant that a Rs 12.53 a litre increase is still required in diesel, Rs 30.53 in kerosene and Rs 396 on a domestic LPG cylinder, even after the last fortnight’s oil downslide.
The government and oil companies together had to bear a Rs 1,38,541 crore subsidy burden in 2011-12, when crude had averaged $112 a barrel. The government paid Rs 68,481 crore from its coffers. It has budgeted Rs 43,580 crore as budgetary subsidy on this account for this year.
