Fall in Indian rupee may hike oil import

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May 6, 2012

MUMBAI: The record free fall in the value of the rupee to Rs 54 against the US dollar will impact import costs leading to another hike in the price of essentials like petrol, diesel as well as cooking oil.

This will cause a ripple effect on the price of fruits, vegetables, poultry items and non-perishables. Cooking at home will inevitably become more expensive and rates in restaurants could be revised as well.

May 6, 2012

MUMBAI: The record free fall in the value of the rupee to Rs 54 against the US dollar will impact import costs leading to another hike in the price of essentials like petrol, diesel as well as cooking oil.

This will cause a ripple effect on the price of fruits, vegetables, poultry items and non-perishables. Cooking at home will inevitably become more expensive and rates in restaurants could be revised as well.

India imports around 9 million tonne edible oil each year, causing a direct correlation with the dollar-rupee equation. "Prices are spiralling up every few weeks. Currently, a single litre of groundnut oil costs Rs 144, while a 15-litre can comes for Rs 2,380. Basic sunflower oil costs Rs 84 per litre, while a premium brand has hiked rates to Rs 148 per litre, up by Rs 7 since last month," says Pravin Shah of Meghdoot Agencies in Ghatkopar. There is no saying how rates could rise after the rupee effect.

Manav Gokhale, CEO of Raj Oil Mills, says the price of indigenous extracts like mustard and groundnut oil may not be impacted as much, but sunflower, soya and palm, which are largely reliant on imports, may shift the burden to consumers if the dip is prolonged. "If the trend continues, it is also likely that buyers may shift preference to less expensive oils. After all, your family will not ask if you have prepared dum aloo in groundnut or sunflower that are expensive or dum aloo in palm oil that works cheaper. Those who buy five-kg pack may opt for one-kg packs instead," he says. "One cannot cut down on consumption but one may defer purchase."

Fuel remains a major concern. At present, diesel costs Rs 45.28 per litre in Mumbai, while petrol comes for Rs 70.66. The weakening rupee has a direct impact on crude oil imports. India imports 80% of its total requirement of crude oil, apart from gas as well as petroleum products like LPG and diesel. "Currently, the government provides a subsidy of Rs 14.20 per litre. But should it decide to cut this figure by half, the consumer will have to bear the rest of the cost," says oil expert Narendra Taneja.

On Saturday, finance minister Pranab Mukherjee signalled a partial, if not total, decontrol of diesel prices at the Asian Development Bank meeting. Taneja says decontrol is a foregone conclusion, the only way the government can make things easier for the common man is to cut taxes. "Oil companies are in the ICU and will shortly lapse into coma," he says. "Subsidy will have to go. The central government may reduce excise to relieve the burden but sales tax is a state subject. And since states earn up to 30% of their revenue from oil by investing nothing at that, it remains to be seen if they will sacrifice this cosy arrangement."


Courtesy: economictimes