Forget Budget! Fuel price hike now..............

It's the high crude price and government's dilly-dallying attitude that may pinch common man's pocket once again this summer. Already combating inflation, common man may be forced upon by another fuel price hike soon. Assembly elections being a history now and the Budget pegging an ambitious fiscal deficit target, experts are worried that fuel price hike is just waiting in the wings.

Not only that, the Finance Minister Pranab Mukherjeehas himself hinted at a fuel price hike soon, saying 'political consensus for it would be built after the session'.

However, it is not time to hit the panic button yet. The market has already factored in a both petrol and diesel price hike. "Our own calculations is that we will see a Rs 2 hike in diesel coming this fiscal year at least and about Rs 4-6 on petrol," Tirthankar Patnaik, Religare Capital Markets says.

There are other experts who think the government may take some more time to hike fuel price. Jyotivardhan Jaipuria, Head Of Research, BofA Merrill Lynch feels that hike will strictly depend on global crude price which may even hit the Indian market.

Jaipuria explains that the finance minister did not want to risk announcing an increase in oil prices because politically it may not have gone down well.  "Probably he is hoping to first pass the Budget and then get down to these issues which will probably be more controversial and where he needs to build much bigger consensus amongst his allies and probably some of the opposition parties," he adds.

Experts warn that the market will raise red flags if crude inches by another USD 10 per barrel.

BPCL views

Whatever said and done, Bharat Petroleum is going to hike petrol price soon.

In an interview to CNBC-TV18, RK Singh, CMD, BPCL said, "We are watching the situation, the movement of the price in the international market. Very soon we will take a call on that. As you know in my view if the subsidy has to be kept at the level that has been provided for by the government I don't think there is any other option other than increasing the price. When and how much is the issue that government will have to decide."

Explaining the situation that under-recovery has gone up to more than Rs 6 per litre and the international price of petrol has gone up to about a USD 135 a barrel, Singh stresses that there is no option but to hike rates.

The quick fix solution he points out that is if crude falls below USD 100 it will be easy for the government to raise the prices not to very high level and yet maintain the subsidy level of Rs 43,000 crore.

'Oily' woes

The government had decontrolled petrol price in June 2010, diesel and domestic LPG are sold at highly subsidised prices.

However, even petrol price have not moved in tandem with cost with state oil firms losing over Rs 5 a litre because of an informal moratorium imposed in view of assembly polls. They currently lose Rs 14.73 a litre on diesel, Rs 30.10 a litre on kerosene and Rs 439.50 per LPG cylinder.

In the current fiscal, the government has provided Rs 65,000 crore in fuel subsidy, which it hopes to trim down to Rs 40,000 crore in 2012-13. It targets to bring down the subsidy bill to below 2% of GDP in FY'13.