• Source:JND

Fuel Price Hike Impact: The government has recently announced a hike in petrol and diesel prices by Rs 2.61 and Rs 2.71, respectively. This is the fourth such increase since May 15, when the fuel prices were increased for the first time in the wake of elevated crude rates due to conflict in the Middle East. A cumulative increase of around Rs 7.5 per litre in the fuel prices in the last 11 days has come as a major blow for common citizens and businesses on top of rising inflation. 

Fuel Price Hike Timeline

The fuel prices--petrol and diesel-- in the retail market have been increased by a total of more than Rs 7 per litre in several phases over the past 11 days. 

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First, the prices were hiked by Rs 3, then by 90 paise, then by 87 paise, and most recently by Rs 2.61 per litre. However, according to financial market estimates, this increase is not enough to cover oil companies' losses.

What will be the impact on the common man?

Common Citizens: People who commute by two-wheeler or four-wheeler will now have to pay around Rs 7 to 7.5 extra per litre on petrol and diesel prices. Additionally, school bus fares and auto-taxi fares may also increase.

Businesses: The frequent increase in petrol and diesel prices would elevate transportation costs, and eventually, it would impact the cost-effectiveness and margin of the business.  

In addition, increased transportation costs could lead to higher prices for goods, and this will also impact delivery charges. The gig economy may also be affected.

Will There Be More Price Hikes Ahead? 

Considering the scenario, the recent price hike has reduced oil companies' daily losses, but not completely eliminated them. According to analysts, every 50 paise increase in fuel marketing margins improves oil companies' earnings before interest, taxes, and depreciation by approximately 7 to 11 per cent. This is why even a small increase in fuel prices significantly boosts companies' profits.

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According to industry estimates, when crude oil prices were at their peak, these companies were collectively incurring losses of approximately Rs 1,600 crore per day. The government eventually allowed a gradual price increase, but the pace of rate increases in India has been much slower than the rise in international oil prices.

Therefore, chances of a few more rounds of price hikes would not be a surprising move. 


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