State-owned fuel retailer Hindustan Petroleum Corporation Ltd. said bringing petroleum products under the Goods and Services Tax will provide a long-term solution even as oil marketers increased the prices of petrol and diesel for the tenth straight day in line with rising crude prices.
“We need something to reduce the taxation,” HPCL’s Managing Director MK Surana told reporters at a press conference today, adding that a long-term solution lies in bringing petroleum products under the the new indirect tax regime. “GST will also rationalise the taxation structure…the GST Council has to do it.”
From being a beneficiary of benign global oil prices a few years ago, India, the third-largest importer, faces multiple risks – from ballooning budget deficits to rising inflation – with prices now on the upswing. This threatens to dent Prime Minister Narendra Modi’s reformist agenda in the run-up to the general elections in 2019.
At a conference to announce HPCL’s quarterly earnings, Surana attributed the 19-day price freeze by oil marketing companies ahead of the Karnataka assembly polls to a “study on the impact of average spike in price”.
A fortnight before Karnataka went to polls on May 12, state-run oil firms had stopped daily revision of petrol and diesel prices even though the benchmark international rates had gone up by almost $2 per barrel. Price hikes resumed after voting day and continued on a daily basis ever since. The price of petrol was hiked by 29 paise today to Rs 84.9 a litre in Mumbai. Diesel was raised by 28 paise to Rs 72.76 a litre, according to data released by Indian Oil Corporation Ltd.
“Prices (of oil) are benchmarked with international crude, which is monitored daily and revised on a 15-day average basis. Price of crude rose to $74 per barrel on May 9 and remained continuously high,” Surana said. “There’s a possibility that when crude prices go up, the product prices aren’t going up. It may go up slowly because the impact in the 15-day range depends on whether the spike was only on one day or for a longer time.”
On whether it was a conscious decision by all oil companies to not revise prices from April 24, Surana said, “If you are in a market and have competitors, the price has to be the same for all and everyone calculates on the same formula. Marketing margins don’t allow for a long-term price freeze so the oil companies may further increase prices.”
He was guarded on the impact to margins in the 19-day period. “The margins are not calculated daily, but on an annual basis.”
Surana said that he isn’t aware of any meeting with Oil Minister Dharmendra Pradhan to discuss a pricing formula for oil. He doesn’t expect prices to cool in the next two-three months in the absence of a trigger. “A lower crude price is always beneficial for refineries. We’ll be happy to have crude at $60-70 per barrel. We expect oil to be priced between $70-80 per barrel.”