The rupee’s fall against the US dollar since August 1 accounts for about Rs 2.50 of the rise in pump prices of petrol and diesel, oil company executives said. At the same time, forex dealers said they did not expect the rupee to bounce back in a major way.
Since the government has ruled out a reduction in excise duty, the only way pump prices can revert to the August 1 level is for crude to fall or states to cut VAT by Rs 2.50 or so to negate the impact of a weaker rupee.
“Weakening of the rupee has built in about Rs 2.50 into the (fuel) prices. Crude prices have been range-bound, swinging up and down by $1-3 since August 1. Going by the forex market outlook, the only way fuel prices can return to their August 1 level is for crude prices to fall by $5 a barrel or so at current exchange rate,” an executive handling global trading for an oil company told TOI requesting anonymity.
The build-up due to the weakening of the rupee roughly accounts for 56% and 50% of the increase in petrol and diesel prices, respectively, since August 1. In dollar terms, while the Indian basket has become costlier by 3%, the price of imports has appreciated three times in rupee terms in the last 40 days or so.
This has been reflected in pump prices, which had been moving in a narrow band but has been rising continuously since August 16, testing new peaks in step with the rupee’s fall. Petrol and diesel prices hit fresh highs on Tuesday as rupee plunged to a new low before closing at 72.69 to a dollar, making imports costlier. In Delhi, petrol price climbed to a record high of Rs 80.87 a litre, while diesel scaled to a fresh high of Rs 72.97 a litre.
On Monday, a top government official had virtually ruled out any excise duty cut, saying the exchequer would not be able to stomach the revenue loss from such a move at this juncture. He said reducing excise duty by Re 1 would bring down the Centre’s revenue by approximately Rs 14,000 crore.