Oil marketing companies are yet to pass on the windfall gained from a sharp appreciation of the rupee to consumers. The Indian currency (INR) Thursday closed little changed against the US dollar at a level of 64.92 — a level last seen October 23, 2015, up 0.18 per cent from its Monday close of 65.05.
Money markets were closed Tuesday for Gudi Padva. So far this year, the rupee has gained 4.43 per cent against the US dollar. Although a strengthening rupee may be bad news for our exports and IT vendors, it is good news for the country’s current account deficit (CAD) position.
Crude oil constitutes the lion’s share of our imports bill and thus the rising rupee will have a salubrious effect on our balance of payments. As rupee has sustained its shine for most part of this year, oil marketing companies should effect a sharp cut in retail prices of fuel.
The revision, likely to come next week, will come after almost a month. Oil companies normally review petrol and diesel prices every fortnight. However, in March it was done only once, even when there is a consistent surge in value of the currency against the dollar this month.
International prices of crude oil remaining flat could be one of the reasons for pump prices of fuel not changing in the second fortnight of this month. With the rupee coming below 65 versus dollar, expecting a sharp cut in fuel prices is only par for the course.
Is the government trying to help oil marketing companies such as Reliance by not cutting fuel prices for a month now? Such thoughts are natural. Whenever there was a fall in the exchange value of rupee in the past, the government did not skip a single fortnight to jack up the oil price.
Even oil marketing companies had effected out-of-turn raises in fuel prices. It defies reason as to how the government can sit cool when oil retailing firms are resisting prices cuts in the face of a record rise in value of the rupee.
The Indian currency has been consistently appreciating for most part of the month. Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation and private sector oil distributors such as Reliance stand to reap a sure windfall because of the sharp appreciation in the rupee.
There is a mechanism to determine the retail selling price of petrol. The average price of crude oil of the Indian basket is calculated every fortnight and this is calculated in dollars per barrel of crude. The price in Indian rupees is also dependent on the average exchange price for that fortnight.
The value of Indian rupee is dependent on the average exchange price for that fortnight. Following the drop in global oil prices, the rate at which Indian refiners buy their crude oil has fallen.
According to petroleum planning and analysis cell, the price of the Indian basket of crude oil has settled near $50 a barrel for the current fortnight, over $5/bbl lower than the price March 1. Going by data compiled by analysts, internationally, the average price of diesel has fallen by 10 per cent from the March 1 level.
The average price of petrol has also dipped 5.5 per cent since March 1. If one juxtaposes this with the four plus per cent appreciation by the Indian rupee, the currency exchange burden on oil marketing companies has come down substantially.
In view of this, there is a strong case for oil marketing companies to cut petrol price by a minimum of Rs 5, if not more, and diesel price by at least Rs 4. Any delay in slashing the rates will only fatten the pockets of the oil marketing firms, not least private behemoths such as Reliance Industries.
