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Home News Power Sector News Fuel price rise: Inflation to go up , left protests

Fuel price rise: Inflation to go up , left protests

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Fuel price IncreaseThe decision of the UPA government to inflict a steep rise in the prices of petrol, diesel, kerosene oil and cooking gas is a cruel blow against the people who are already suffering due to the runaway increase in the prices of food and essential commodities. The price of petrol has gone up by Rs. 3.50 per litre, diesel by Rs. 2 per litre, kerosene oil by Rs. 3 per litre and cooking gas by Rs. 35 per cylinder..The Left parties comprising the CPI, CPI(M), RSP and Forward Bloc while demanding the scrapping of the price hike, called on all the parties to jointly launch protests against the price rise. The Left parties have also planned to hold a convention of all trade unions on 15 July.

"The decision of the UPA government to inflict a steep rise in the prices of petrol, diesel, kerosene oil and cooking gas is a cruel blow against the people who are already suffering due to the runaway increase in the prices of food and essential commodities," the four Left parties said.

The inflation rate, as measured by the WPI, was 10.16 per cent in May, exceeding analyst expectations and fuelling inflationary ones. It had breached the double-digit mark at 10.3 per cent in February, while peaking at 11.04 per cent in May, primarily driven by a consistently high food inflation and rapidly picking up core inflation. Core inflation is a measure that excludes certain items that face volatile price movements, particularly food and energy.

"The immediate impact on headline WPI inflation would be 70-90 basis points, while the total impact would be around 120 basis points over the next seven-eight months, including the second-round impact of higher diesel prices, that would increase transportation costs and food prices," said Indranil Pan, chief economist, Kotak Mahindra.

Most forecasters will raise their expectations for the current financial year by 100-130 basis points. However, they are divided on whether the Reserve Bank of India would go for a policy rate hike before the monetary policy review on July 27. Most see point-on-point inflation in the range of 7-7.5 per cent by the end of 2010-11.

Even as the fuel index constitutes a low weight of 14.22 per cent, analysts are concerned about the ripple effect that today's decisions would have in the entire index, as transportation and production costs will rise in the coming months, hitting consumers sharply.

"It would definitely be a shock for consumers, as consumer prices will go up significantly, but given that the move is directed towards more efficient consumption, it is definitely a step in the right direction," said Sumita Kale, chief economist with research agency Indicus Analytics.

This callous decision of the government has come at a time when the food inflation rate is around 17 per cent and the general inflation rate has reached double digits. India has the dubious distinction of having the highest rate of consumer price inflation in the world.

The UPA government has decided to deregulate the price of petrol and leave it to the market to determine. Going by the Kirit Parikh Report, the government is going to decontrol prices of all petroleum products, including diesel. This is going to prove disastrous for the economy and the country.

The government is giving false arguments to justify these measures. The prices of petrol and diesel were increased by Rs. 3 per litre only three months ago at the time of the Union Budget. International oil prices have not risen substantially in this period. Neither is the government prepared to rationalize the taxation structure on petroleum products which is adding to a price of petrol and diesel in a large measure.

It is a myth that such a step is being taken to protect the public sector companies from under-recoveries. The so-called under-recoveries are entirely based on notional prices calculated without any reference to the actual cost of production. In fact, the deregulation is only to help private companies who withdrew from the market because of the government price controls. Now they will be free to enter the market to make profits.

By deregulating petrol prices, the government has opened the way for continuous increases in the prices of petrol. By increasing the price of diesel and kerosene oil, the farmers and the poorer sections are going to be badly hit. The LPG increase will further burden the middle classes.

The Left parties demand the immediate scrapping of the price increases. They call upon all their units to jointly launch protests against these hikes.


Source- Business Standard



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