New Delhi: Attributing the steep hike in petrol prices to declining value of rupee, Planning Commission on Wednesday said it will have immediate impact on the price situation but things will stabilise in the long run.

"It will have immediate impact on prices, but will not have knock-on impact on prices. This is one time price adjustment. It will not have cascading effect", Planning Commission Member Abhijit Sen said.

In view of the impact of declining value of rupee, which touched Rs 56 to a dollar, the state owned Oil Marketing Companies (OMCs) raised petrol prices by over Rs 7 a litre.

The hike, he said, "will not even result in 50 basis points (0.5 percent) increase in headline inflation. This is happening because of rupee depreciation in the recent times".

The retail inflation (Consumer Price Index) for April was 10.36 percent, up from 9.38 percent a month ago. The inflation based on movement in wholesale prices (WPI) moved up to 7.23 percent from 6.89 per cent in March.

Expressing similar opinion, D K Joshi, chief economist CRISIL said: "Petrol doesn’t have much impact on wholesale price based inflation as it does not have much weight in the index.

"It is not like diesel which is a transport fuel. The impact will be muted. But the increase has been very sharp. I think the WPI inflation will be impacted below 15 basis points", he said.

Jagannadham Thunuguntla, head of research, SMC Global Securities said, "the hike has been quite steep than expected. We can see WPI based inflation in the range of 8-9 per cent".

The price rise, he added, "will benefit the state-run oil marketing companies and their stock prices will increase tomorrow. The government may think of diesel price deregulation following this as Parliament session is over," he said.

Auto industry fumes over price hike

"Petrol cars are not selling as such already. With this record hike, the situation will go from bad to worse," Society of Indian Automobile Manufacturers (SIAM) Senior Director Sugato Sen said.

In the short-term, sales will be further impacted while in the long term a negative consumer sentiment will be created which can hurt the growth of the industry, he added.

Expressing similar sentiments, General Motors India Vice President P Balendran said: "Earlier, the industry was expecting a growth of 8-10 per cent this fiscal but I will not be surprised if we are in the negative territory due to fuel price hike and high interest rates as the market continues to be sluggish."

This will result in inventory pile up of petrol vehicles as more and more consumers will opt for diesel vehicles, he added.

Maruti Suzuki India Managing Executive Officer, Marketing and Sales Mayank Pareek said: "This will further increase the skew between petrol and diesel vehicle demand, which is already very wide. This will severely affect the sales of entry level cars, which are mainly petrol driven."

Last year, the petrol segment declined by 16.2 percent as the demand shifted to diesel vehicles. Now there will be more demand for diesel cars after the price hike but most of the manufacturers are running on full capacity for diesel vehicles, he added.

Hyundai Motor India Ltd Director Marketing and Sales Arvind Saxena said: "Demand is already under pressure on account of inflation and high interest rates. A hike of such magnitude is neither good for the customer nor for industry."

Ficci welcomes petrol price hike

"However, this increase, welcome as it is, will only partially cover the under recoveries on account of kerosene (Rs 31 per liter), diesel (Rs 13.64 per liter) and Rs 479 for each cylinder of LPG. It is time that government allows these prices also to move to their market determined level," it said in a statement.

"Rationalisation of petroleum products prices will provide the necessary incentives for the development of alternative and renewable sources of energy, encourage conservation and more important improve the fiscal balance," Ficci said.

"The increase had perhaps become inevitable with the continued slide in Rupee's exchange rate," it said, adding "it can be mitigated by reduction in taxes both by the central and state governments".

Ficci hoped all political parties will support the move towards the rationalisation of the entire spectrum of petroleum prices.


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