India’s Move to Increase Gasoline Prices May Stoke Inflation
Biggest Petrol Price Rise in India Since 2008
Sanjit Das/Bloomberg
Customers fill up their motorcycles at an Indian Oil Corp. gas station in Bhubaneshwar, India.
Customers fill up their motorcycles at an Indian Oil Corp. gas station in Bhubaneshwar, India. Photographer: Sanjit Das/Bloomberg
India’s move to increase gasoline prices by the most in three years may accelerate what is already the fastest inflation rate among Asia’s major economies, damping demand for the nation’s assets.
Benchmark bond yields may climb to a 31-month high on concern faster price increases will erode returns from financial-market investments, said Pradeep Madhav, managing director at Securities Trading Corp., a primary dealer which underwrites government debt. India raised gasoline prices by as much as 8.5 percent yesterday to limit losses at state-run refiners and help the government cut fuel subsidies.
State refiner Indian Oil Corp., the country’s largest, raised the price of gasoline by 5 rupees a liter to 63.37 rupees ($1.4) in New Delhi, the company said on its website. That is the biggest increase since June 2008. Inflation in India is the highest after Russia among the so-called BRICS economies and if left unchecked could rekindle public protests and undermine Prime Minister Manmohan Singh’s government.
“The financial market has been expecting a rather steep petrol price increase but still there’s bound to be an immediate negative reaction,” Mumbai-based Madhav said. “We may see bond yields rise by about two to three basis points when the market opens.”
The yield on the benchmark 7.8 percent government note due April 2021 rose one basis point, or 0.01 percentage point, to 8.28 percent in Mumbai today, according to the central bank’s trading system. The rate increased to 8.30 percent last week, the highest level since October 2008.
Crude Costs
Crude oil has climbed 41 percent in New York in the past year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Algeria, Bahrain, Iran, Syria and Yemen. Import costs for India, which buys almost three-quarters of the oil it uses from overseas, surged to a one-year high of $9.4 billion in March.
The Bombay Stock Exchange’s Sensitive Index of local shares has lost 10 percent this year and the nation’s bonds are the worst performers in the region on concern inflation that has exceeded the central bank’s target will damp economic growth. Indian debt returned 0.2 percent this year while Indonesian notes earned 4.3 percent, according to indexes compiled by HSBC Holdings Plc. (HSBA)
India’s inflation rate rose more than estimated in April, adding pressure on the central bank to extend interest-rate increases. The monetary authority raised interest rates by half percentage point this month, the biggest increase in three years and the ninth since March 2010, to cool price gains and said economic expansion may slow as borrowing costs rise.
The wholesale-price index climbed 8.66 percent in April from a year earlier after an 8.98 percent gain in March, the commerce ministry said in a statement in New Delhi today. The median forecast of 19 economists in a Bloomberg News survey was for an 8.5 percent increase.
By comparison, consumer prices rose 5.3 percent in China, 9.6 percent in Russia, 6.5 percent in Brazil and 4.1 percent in South Africa.
Indian Oil climbed as much as 4.7 percent to 359.70 rupees in Mumbai trading and was at 342.95 rupees at 1:15 p.m. local time. Bharat Petroleum Corp., the second-biggest state refiner in the country, gained as much as 3.1 percent and Hindustan Petroleum Corp. advanced as much as 5.6 percent.
Public Protests
Higher prices are eroding purchasing power in the second- most populous nation where, the World Bank says, 66 percent of the people live on less than $2 a day. Tens of thousands of protesters from 19 of India’s 28 states gathered in New Delhi on Feb. 24 to protest against rising costs.
The first nationwide increase in gasoline prices in four months may help reduce losses at government-run refiners and also address a disadvantage they face against non-state companies such as Reliance Industries Ltd. (RIL), which sell fuels at market rates in India and overseas. State oil companies lose almost 5 billion rupees a day on fuel sales, according to the oil ministry’s website.
India’s state-run refiners also sell diesel, cooking gas and kerosene below market prices to help curb inflation, while the government set gasoline prices free of all controls on June 26. Indian Oil hadn’t increased diesel prices since June 26 and gasoline since Jan. 16, according to the company’s website. Diesel has a 4.7 percent weighting in India’s benchmark wholesale-price index and gasoline 1.1 percent.
A panel of Indian ministers will review prices of diesel, liquefied petroleum gas and kerosene next week, Press Trust of India reported, citing Finance Minister Pranab Mukherjee.
The group of ministers will decide on the oil ministry’s demand to increase diesel by 4 rupees a liter, the report cited Mukherjee as telling reporters after meeting Congress legislators from West Bengal state.
To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net
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