Business, Economics and Jobs

India mulls risky diesel, kerosene price hike as rupee losses continue


India's Prime Minister Manmohan Singh speaks during the Opening Ceremony for the Delhi 2010 Commonwealth Games at Jawaharlal Nehru Stadium on Oct. 3, 2010 in New Delhi.


Ian Walton

As the rupee continued to plunge Thursday despite the largest ever hike in petrol prices overnight, Prime Minister Manmohan Singh is reportedly weighing an increase in the prices for diesel and kerosene, according to the Times of India.

"A panel of ministers is due to meet on Friday to discuss diesel, LPG and kerosene prices, according to unconfirmed reports, although full deregulation is not expected," the paper said.

While a diesel and kerosene price hike would result in a more significant reduction in the government's subsidy bill -- and thus provide more encouragement to foreign investors -- politically the move is even riskier than Singh's unpopular decision to raise petrol prices.

Not only does an increase in kerosene prices hit the poorest of the poor -- who rely on kerosene when electricity is not available. But also an increase in diesel prices has a more direct impact on inflation than a rise in petrol costs, because diesel prices directly affect the trucking companies that transport the bulk of Indian goods.

The rupee hit an all-time low of 56.40 to the dollar on Thursday, continuing a slide that has seen it lose 13.8 per cent from a February peak as global risk aversion hits India especially hard due to its twin deficits and sluggish policymaking, all of which has scared off investors, TOI said.