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Growth and budget face strain as fuel and cooking gas price rises

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Fuel and Cooking gas price hike

Since November 2021, the country has been going in and out with the idea of a price hike in oil and cooking fuel. The situation finally rested on 22 March 2022 when the government announced a hike in the cost of petrol, diesel, and LPG after four months gap.

The price of petrol and diesel has been increased by 80 paise a liter each, whereas the home cooking gas will face an increase of Rs. 50 per cylinder in comparison to its previous cost. This rise in prices is most likely to put pressure on household budgets as the Russia-Ukraine war goes on and the rate of global oil keeps spiking.

This has become more impactful, especially when the country is moving forth to recover its economy from the loss suffered due to the pandemic breakout. There is a potential chance of putting the growth of the country at risk with the increasing price pressure. 

With the challenges of the new Covid strain and the Russia-Ukraine crisis knocking on the door, retail inflation has been risen to 6.1% in February, whereas Wholesale Price Inflation (WPI) has reached 13.1% in the period. Overall there is an average increase in prices of commodities which has pushed the inflation rate to 6.1-6.3% in FY21. 

As per estimates, a $10 increase in oil price per barrel will result in an increase of WPI by about 1.7% and aggravate the CAD by $9-10 billion. Consequently, this will further impact the growth of the country by an average of 0.2-0.3% points reduction. As per RBI, retail inflation will see a rise of 30 basic points in result of an increase of 10% in crude oil prices. If the global oil price goes above $90 per barrel, the total revenue loss suffered by the country will be around Rs. 95,000 crore to Rs. 1 lakh crore in the next FY23. 

While lowering the excise duty in comparison to last year may help the general population with the price hike, it will still pose a challenge to economic growth if the cost of crude oil stays above $90 per barrel throughout the FY.

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