Petrol price cut will not help inflation: Experts

November 16th, 2011 - 5:41 pm ICT by IANS  

Kolkata, Nov 16 (IANS) The cut in petrol prices by state-run oil companies will have negligible or marginal impact on the country’s economy and will not help the near double-digit inflation to cool down, industry experts observe.

India’s fuel retailers cut petrol prices by Rs.1.85 per litre Tuesday.

The move came after some United Progressive Alliance (UPA) allies, including Trinamool Congress, and opposition parties alike criticised the petrol price hike of Rs.1.80 per litre earlier this month.

However, Indian Oil Corp (IOC), the largest of the three state-run oil marketing companies, stated that a fall in global crude prices and the rupee remaining stable at 49.30 to a US dollar were the reasons for the cut in petrol prices in domestic market.

“Bringing down fuel prices is always a good decision. Now the thing is that we have to see how sustainable it is as the rupee is depreciating against the dollar. The government must take measures to ensure that rupee does not depreciate,” Srei Infrastructure Finance managing director Hemant Kanoria told IANS here Wednesday.

Kanoria said Rs.42 to Rs.44 was the right level of exchange rate against dollar.

“The price cut will have some marginal effect on the economy. Continuous hike in petrol prices was badly affecting the auto market of the country. Car owners now will get some relief. So general people will be benefited by the decision,” he said.

He also observed that the reduction in petrol prices will not have any cooling effect on overall inflation which has stood at over nine percent for 11 months in a row.

Emami Group of companies director Manish Goenka said the petrol price cut will only benefit the common people, not the industry. “Now use of petrol is very limited in the industry. So the slash in petrol prices will not have any impact on the industry. But the cut is good for consumer sentiment,” he said.

D.P. Nag, secretary of industry body Bengal National Chamber Of Commerce and Industry (BNCCI), said fuel prices always affect the industry. “But I think there will be a very negligible effect on industry because petrol use is reduced now,” he averred.

He, however, said reducing petrol prices was a good signal. “It is a good signal for any market economy where reduction in global crude oil prices should be followed by a corresponding reduction in prices of fuel in the domestic market.”

Dipankar Dasgupta, former professor of economics at the Indian Statistical Institute (ISI), also felt that petrol price cut will not give people any relief from very high inflation.

“In the Wholesale Price Index (WPI), the weightage of fuel is only 24 percent. And in this 24 percent, share of petrol is only one percent. So we are talking about one percent of the 24 percent….”

“Thus petrol prices have a very insignificant impact on overall inflation,” Dasgupta observed.

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