Prime Minister Narendra Modi is poised to announce substantial reductions in petrol and diesel prices before the year comes to a close. Government sources indicate that the Petroleum Ministry has crafted a proposal, seeking the Prime Minister’s approval, outlining cuts ranging from Rs 8 to Rs 10 per litre in both fuels.
The driving force behind this proposed price drop is the significant decline in the cost of imported crude oil, a key component in the production of petrol and diesel. The Ministry’s proposal cites the decrease in the purchase price of crude oil as the primary justification for these substantial reductions.
The average price of crude oil during the current financial year (April-March) stands at $77.14 per barrel, with only two months, September at $93.54 and October at $90.08, experiencing a notable increase. In comparison, the average crude oil price in the preceding fiscal year (2022-23) was $93.15 per barrel.
Notably, despite consistent ex-refinery prices since April 6, 2022, the government-run oil marketing companies – Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp – have reported significant profits in the first six months of the current fiscal year. A combined net profit of Rs 58,198 crore has been recorded, owing to the favorable conditions created by the lower crude oil prices.
The government’s move to support oil marketing companies in the face of losses during the previous fiscal year, caused by crude prices exceeding $90, is also apparent. The Union Budget for 2023-24 allocated Rs 30,000 crore as equity infusion for the companies under the pretext of funding green carbon initiatives. However, this financial support was not utilized due to the unexpected windfall in the current fiscal year.
Insiders suggest that beyond economic considerations, the impending price cuts could serve as a strategic move by the ruling party. With the general elections looming in the first half of 2024, the government may intend to position itself favorably by addressing key concerns, particularly inflation. This announcement could potentially counter the Opposition’s narrative, which seeks to portray inflation as the government’s major shortcoming.
It’s worth recalling that on May 22, 2022, the central government had previously reduced the Central Excise Duty on petrol and diesel by Rs 8 and Rs 6 per litre, respectively. This move was aimed at curbing inflation, given the significant impact of these automotive fuels on the Wholesale Price Index (WPI), where they hold respective weightages of 1.60 per cent and 3.10 per cent. The upcoming price cuts appear to be a continuation of this effort to provide relief to the public amidst economic considerations and political dynamics.