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| India forced to raises oil prices | India forced to raises oil prices |
| (20 minutes later) | |
| The Indian government has raised prices of petroleum products despite fears that it will worsen inflation and lead to popular protests. | The Indian government has raised prices of petroleum products despite fears that it will worsen inflation and lead to popular protests. |
| Petrol, diesel and cooking gas will be dearer from Wednesday midnight, federal oil minister Murli Deora said. | Petrol, diesel and cooking gas will be dearer from Wednesday midnight, federal oil minister Murli Deora said. |
| India imports 75% of its oil, and spends billions of dollars subsiding fuel for its citizens. | India imports 75% of its oil, and spends billions of dollars subsiding fuel for its citizens. |
| The government move comes despite warnings that it could cost it votes with key elections looming. | The government move comes despite warnings that it could cost it votes with key elections looming. |
| The subsidies mean that petrol is sold considerably cheaper than its free-market value. India accounts for 3% of the global demand for oil. | The subsidies mean that petrol is sold considerably cheaper than its free-market value. India accounts for 3% of the global demand for oil. |
| This is lower than China's 9% and the US's 25%, but demand is rising fast on the back of a booming economy. | |
| Mr Deora said that petrol and diesel prices would be raised by five rupees (12 cents) and three rupees (seven cents) a litre. | Mr Deora said that petrol and diesel prices would be raised by five rupees (12 cents) and three rupees (seven cents) a litre. |
| The price of a cooking gas cylinder will be raised by 50 rupees ($1.20), he said. | The price of a cooking gas cylinder will be raised by 50 rupees ($1.20), he said. |
| 'Marginal hike' | 'Marginal hike' |
| Kerosene, the poor man's cooking fuel, has been left untouched. | Kerosene, the poor man's cooking fuel, has been left untouched. |
| "It has now become absolutely necessary for the consumer to shoulder a small part of the burden [of increasing oil prices] through this marginal hike," Mr Deora told reporters. | "It has now become absolutely necessary for the consumer to shoulder a small part of the burden [of increasing oil prices] through this marginal hike," Mr Deora told reporters. |
| He said the government was slashing customs duty by 5% on crude and oil products to offset some of the price rises. | He said the government was slashing customs duty by 5% on crude and oil products to offset some of the price rises. |
| It is also cutting excise duty on petrol and diesel by one rupee a litre. | It is also cutting excise duty on petrol and diesel by one rupee a litre. |
| These tax cuts will leave the government short of $5bn worth of revenues, Mr Deora said. | These tax cuts will leave the government short of $5bn worth of revenues, Mr Deora said. |
| Analysts say the loss in revenues will impact government spending on social schemes. | Analysts say the loss in revenues will impact government spending on social schemes. |
| Higher oil prices push up prices of food in India | Higher oil prices push up prices of food in India |
| Oil price rises are a sensitive political issue in India, where a marginal rise in the price of, say diesel, triggers off food and other commodity inflation. | Oil price rises are a sensitive political issue in India, where a marginal rise in the price of, say diesel, triggers off food and other commodity inflation. |
| Road and railway transport carry most of India's food and other goods and are totally dependent on diesel. | Road and railway transport carry most of India's food and other goods and are totally dependent on diesel. |
| With inflation hovering around 8% - the highest in four years- the Congress party-led federal government has been wary of increasing fuel prices for fear of antagonising voters. | With inflation hovering around 8% - the highest in four years- the Congress party-led federal government has been wary of increasing fuel prices for fear of antagonising voters. |
| The ruling party is facing elections in a number of states this year. | The ruling party is facing elections in a number of states this year. |
| "The government was in a bind. You are damned if you increase prices, you are damned if you don't," says economic analyst Paranjoy Guha Thakurta. | "The government was in a bind. You are damned if you increase prices, you are damned if you don't," says economic analyst Paranjoy Guha Thakurta. |
| Bleeding companies | Bleeding companies |
| Three quarters of India's crude oil requirements are imported, and with international oil prices doubling in less than a year, the country's oil import bill has risen unacceptably. | Three quarters of India's crude oil requirements are imported, and with international oil prices doubling in less than a year, the country's oil import bill has risen unacceptably. |
| India's three state-run oil importing, refining and market companies have been bleeding heavily as they have not been able to raise prices. | India's three state-run oil importing, refining and market companies have been bleeding heavily as they have not been able to raise prices. |
| These companies do not function independently. The decision to hike the prices of their oil products is taken by the cabinet committee of economic affairs, India's highest decision making body on matters relating to the economy. | These companies do not function independently. The decision to hike the prices of their oil products is taken by the cabinet committee of economic affairs, India's highest decision making body on matters relating to the economy. |
| For every litre of petrol and diesel sold in retail, these companies lose around 22 rupees and 32 rupees respectively. | For every litre of petrol and diesel sold in retail, these companies lose around 22 rupees and 32 rupees respectively. |
| And for every cylinder of cooking gas sold, the companies lose around 353 rupees ($8.40). | And for every cylinder of cooking gas sold, the companies lose around 353 rupees ($8.40). |
| Car ownership in India has risen, triggering more demand for fuel | Car ownership in India has risen, triggering more demand for fuel |
| During the last financial year which ended in March this year, the three companies lost nearly $17bn because of selling at under the market rate to consumers. | During the last financial year which ended in March this year, the three companies lost nearly $17bn because of selling at under the market rate to consumers. |
| The companies told the government that if they were not allowed to raise prices, they would lose a massive $50bn this fiscal. | The companies told the government that if they were not allowed to raise prices, they would lose a massive $50bn this fiscal. |
| To put this into perspective, the projected loss is 5% of India's Gross Domestic Product (GDP or total value of goods and services produced). | To put this into perspective, the projected loss is 5% of India's Gross Domestic Product (GDP or total value of goods and services produced). |
| It is also higher than the countries 3.5% fiscal deficit which is the excess of government spending over revenues. | It is also higher than the countries 3.5% fiscal deficit which is the excess of government spending over revenues. |
| 'Serious crisis' | 'Serious crisis' |
| The three state-run oil companies told the government they would run out of money to even import crude oil after a few months if the oil prices were not raised. | The three state-run oil companies told the government they would run out of money to even import crude oil after a few months if the oil prices were not raised. |
| "This is the most serious financial crisis facing the country. Somebody had to foot the bill," says Mr Thakurta. | "This is the most serious financial crisis facing the country. Somebody had to foot the bill," says Mr Thakurta. |
| The government's Communist allies have stubbornly resisted moves to increase oil prices, and insisted that government should cut import duties and other taxes to hold prices. | The government's Communist allies have stubbornly resisted moves to increase oil prices, and insisted that government should cut import duties and other taxes to hold prices. |
| Petrol products in India comprise the single largest contributor to indirect taxes. | Petrol products in India comprise the single largest contributor to indirect taxes. |
| The government has said that cutting taxes will leave less money in its hand and severely impair social spending. | The government has said that cutting taxes will leave less money in its hand and severely impair social spending. |
| "Emerging-market countries from Indonesia to India are not being able to sustain ballooning oil subsidies any longer and have no choice but to pass on the cost of higher oil to consumers," says Ruchir Sharma, Managing Director at Morgan Stanley Investment Management. | "Emerging-market countries from Indonesia to India are not being able to sustain ballooning oil subsidies any longer and have no choice but to pass on the cost of higher oil to consumers," says Ruchir Sharma, Managing Director at Morgan Stanley Investment Management. |
| In a similar situation during the 1970's oil shock, the Indian government had passed on steep price rises to the consumer. | In a similar situation during the 1970's oil shock, the Indian government had passed on steep price rises to the consumer. |
| But analysts say that it happened in the days when demand for oil in India was much lower in what was then one of the slowest growing economies in the world. | But analysts say that it happened in the days when demand for oil in India was much lower in what was then one of the slowest growing economies in the world. |
| World oil prices have risen 85% over the past 12 months, according to some estimates. | World oil prices have risen 85% over the past 12 months, according to some estimates. |
| The International Energy Agency reckons that global demand will rise to 86.8m barrels a day this year, up from 85.8 barrels last year, riding on increasing demand for developing nations like China and India. | The International Energy Agency reckons that global demand will rise to 86.8m barrels a day this year, up from 85.8 barrels last year, riding on increasing demand for developing nations like China and India. |