(EnergyAsia, May 30 2012, Wednesday) — Fuel shortages and hoarding continue to grip many Indian cities sparking angry protests and demands that the government of Prime Minister Manmohan Singh scrap its six-day-old gasoline price hike.
Chennai in the east coast state of Tamil Nadu has been the worst hit after retailers serving the city of five million people reported their pumps had dried up on May 27, three days after the government had raised gasoline prices by a record 10% to 11% to an average Rs77 per litre across the country. (US$1=Rs55).
The capital city of Delhi was the first to capitulate in the face of populist anger after Chief Minister Sheila Dikshit announced on May 28 that it would waive the Rs1.26 per litre value-added tax on gasoline that would cost her government Rs1.4 billion a year.
Indian Oil Corp (IOC), the country’s largest downstream company, is also expected to offer slightly reduce prices although it maintains that the oil refining and marketing companies continue to lose money by selling fuel to domestic consumers at heavily subsidised prices.
Pressured by the country’s rising trade and budget deficits, and the need to contain inflation, the government is facing a no-win situation.It needs to raise fuel prices to reduce the country’s trade and budget deficits but higher gasoline prices will feed inflation that will hurt the country’s largely rural population and urban poor. The Indian rupee sank to an all-time low of Rs56.4 to the US dollar on the country’s mounting financial problems.
Business and normal activities have been disrupted in most cities as long queue lines continue to wait at the pumps while companies have started to cut down on staff’s travel while telling some to work from home. Street protests against the government have broken out demanding the fuel increases be rescinded.
In April, the Prime Minister had hinted that the government was planning to increase fuel prices, but few took him seriously as past attempts had failed. The government may yet take on its biggest battle by moving to raise the prices of diesel and kerosene, the country’s two most politically sensitive fuels.