Will Petrol And Diesel Price Decrease In India Ahead Of Lok Sabha Elections 2024?

Fuel Price Review Post Third Quarter Results: A Possible Relief for Consumers

Will Petrol And Diesel Price Decrease In India: State-run oil companies in India are contemplating a reduction in petrol and diesel prices next month, following the release of their third-quarter results. Industry insiders reveal that the combined net profits of these oil marketing companies (OMCs) are expected to surpass a record ₹75,000 crore, despite the softening of crude oil acquisition costs.

Petrol Price Decrease In India Ahead of LS Elections 2024

OMCs Hold ₹10 per Litre Margin for Consumers

Public sector fuel retailers have maintained stable prices since April 2022, and officials suggest that a comprehensive pricing review is on the horizon. With the possibility of OMCs holding margins of ₹10 per litre, consumers may witness a substantial reduction in fuel prices. This move is anticipated to alleviate inflation concerns and could carry political significance in the lead-up to the 2024 General Elections.

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OMC Margins On Petrol: Profits Soar in Q1 and Q2

Experts predict that the net profits of the three OMCs—Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL)—are likely to continue their upward trend in the third quarter of FY2023-24. The potential reduction in fuel prices is attributed to higher marketing margins on fuel sales, resulting in significant profits during the first two quarters of the financial year.

While the government is the promoter and majority stakeholder in the three OMCs, it has emphasized that the companies are free to adjust fuel prices. OMCs wield considerable influence over pump prices, given their monopoly in the domestic fuel retail business, commanding over 90% of the market share.

Inflation Management and Political Significance: A Delicate Balance

As India’s retail inflation edged up to 5.69% in December 2023, the government remains committed to keeping it below the Reserve Bank of India’s upper tolerance limit of 6%. The impending fuel price reduction could play a crucial role in managing inflationary pressures and, in turn, may impact political dynamics in the upcoming elections.

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Will Petrol And Diesel Price Decrease In India: A Key Factor in OMC Profits

Will Petrol And Diesel Price Decrease In India: Analysis of data reveals that OMCs froze petrol and diesel rates in April 2022 amid international oil price volatility. However, average oil prices of the Indian basket began falling from July 2022, dipping below $100 in August 2022. This downtrend continued, with occasional spikes, contributing to significant net profits for OMCs in the first two quarters of FY2023-24.

Windfall Tax Reduction and Softening Crude Prices: Contributing Factors

The windfall tax on diesel exports gradually decreased from ₹6 a litre since September 2023 to zero, while the tax on domestically produced crude oil was reduced to ₹1,700 per tonne. These reductions are attributed to the softening of international oil prices, signaling a favorable environment for potential fuel price cuts.

Conclusion: A Strategic Move with Broader Implications

The anticipated reduction in petrol and diesel prices aligns with the government’s dual objectives of managing inflation and ensuring economic stability. As OMCs prepare to unveil their third-quarter results, the decision to pass on the benefits to consumers could have far-reaching implications on the economic landscape and public sentiment.

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