India said it would raise petrol and diesel prices next week for the first time in more than four months as global crude prices soar after Russia’s invasion of Ukraine last week, government officials said.
Asia’s third-largest economy, which imports 80% of its oil needs, faces retail inflation staying above the central bank’s tolerance limit of 6% as companies pass on a nearly 40% rise in crude prices since November.
State-run oil companies, which control the domestic market, have not raised prices since November. 4, aiming to help the ruling Bharatiya Janata Party in crucial state assembly elections, including in the most populous state of Uttar Pradesh.
“The oil companies would be free to raise prices in a phased manner once the election is over on March 7,” a senior government official told Reuters.
Higher fuel prices could lead to some protests but with the important state elections out of the way, the political risk for prime minister Narendra Modi has been reduced.
Opposition parties will push for fuel tax cuts when parliament meets from March 14.
Oil prices surged after Russia invaded Ukraine on February 24, with Brent rising above $116 a barrel on Thursday.
Supply disruptions have hit global prices of wheat, soybeans, fertiliser and metals like copper, steel and aluminium – raising worries about prices and economic recovery.
State oil companies have told the government that they need a price increase of 10-12 rupees (13-15 cents) per litre for petrol and diesel, a second official said.
A senior official at a state-run oil marketing company confirmed that they were facing difficulties though he declined to give figures. “We are incurring huge losses,” he said.
The government was unlikely to cut fuel taxes to soften the blow, at least before the March 31 end of the fiscal year, considering the impact of that on state revenues, said another senior government official, with knowledge of the budget.
The federal and state governments, which collect over 100% tax on the basic price of petrol and diesel, cut factory gate duties and sales tax on fuel products in November, after a public outcry.
- Reuters with additional editing by George Russell