Fuel price cuts will help tame inflation, boost government ahead of Gujarat, Himachal polls

NEW DELHI: Politically, a substantial reduction in fuel prices may be preferred for the positive impact it will create in favour of the governing dispensation ahead of the assembly elections in Himachal Pradesh and Gujarat, with the poll dates for the latter expected any day now. A reduction in fuel prices will help tame inflation and blunt some of the opposition criticism over high cost of living.

The softening oil prices on Tuesday prompted the government to reduce the windfall gains tax on crude from Rs 11,000 per tonne to Rs 9,500. In the same vein,export tax was raised on jet fuel from Rs 3. 5 per litre to Rs 5 and on diesel from Rs 12 per litre to Rs 13 per litreas margins rose.

Benchmark Brent crude — which has a weightage of about 25% in the Indian bas-ket, the mix of crude bought by Indian refiners — stood at $115 per barrel around the time excise duty was cut. The prices have since come down and are hovering around $95 after briefly dropping below $90 in September.

Retailers have frozen pump prices since the excise duty cut, which, brokerages had said, led to losses of Rs 10 per litre on petrol and Rs 14 on diesel sold during the April-June quarter. Indeed, IndianOil, Bharat Petroleum and Hindustan Petroleum together posted a combined loss of Rs 19,000 crore during that quarter. On Saturday, IndianOil posted a loss of Rs 272 crore for the September quarter.