Bal Malkit Singh, president of All-India Motor Transport Congress

Bal Malkit Singh, president of All-India Motor Transport Congress

Oil firms say they face over $30 billion in losses,

but industry group threatens transport strike


New Delhi, Sept 14, 2012 –  Political parties and citizens greeted the Rs 5 a litre hike in diesel with howls of protest on Thursday. “Already, everything is so expensive. It will be tough to manage the monthly budget without compromising on savings,” said Shweta Singh, a South Delhi school teacher.

The government, however, believes that the increase was unavoidable and said that despite the steps announced after a meeting of the cabinet committee on political affairs, under-recoveries will come down by Rs 20,300 crore (U.S, 3.66 billion) and oil marketing companies would still be grappling with losses of Rs 1.67 lakh crore (U.S. $30.13 billion) in the current financial year.

Despite Banerjee’s demand for a rollback and her colleague Mukul Roy’s grouse of not being consulted, government officials indicated that there was no going back on the decision.

Taken together with the raft of measures under consideration — allowing FDI in different sectors, including muti-brand retail and plan to rake in Rs 12,431 crore by selling stake in three PSU — the price hike marks a bold stab at the ever thickening perception of decision-making being in a limbo, and a desire to make the most of the two-month window before the crucial assembly polls.

They are expected to eliminate the risk of more negative marks from rating agencies and rev up the markets which should in any case be buoyant on Monday because of the easing of monetary policy in the US. The expected cut in interest rates, likely on Monday, can only add to the positive surround sound.

Government, however, took care to cover its political flanks, stressing that the cap on subsidized gas cylinders follows a recommendation made by the parliamentary standing committee headed by Congress MP V Arun Kumar.

To blunt the argument that the hike would hit the common man hard, it emphasized that around 44% of the households consumed six or fewer cylinders every year.

BJP was quick to launch an offensive saying that the diesel price hike will have a cascading effect and further stoke inflation. “Prices are already not under control, so this is going to contribute to overall inflation and create mayhem in the economy,” said former finance minister Yashwant Sinha.

Economists said the immediate impact on inflation would be around 60 basis points but the cascading effect on prices would be higher given that goods are transported by diesel-powered trucks (100 basis points equal one percentage point).

Transporters are expected to raise truck rentals by 7-8% and will take a call on calling a nation-wide strike, to press for a rollback, on Monday.

“We are holding an emergency meeting, where we will decide the date for the strike since we cannot bear the burden,” said Bal Malkit Singh, president of All-India Motor Transport Congress.

A part of the diesel burden on consumers will be on account of a Rs 1.50 a litre increase in excise duty, which will help the government raise additional revenue at a time when its finances are in a disarray.