Petrol price was on Friday hiked by Rs 1.50 per litre and diesel by 45 paise as state-owned oil companies exercised newly bestowed pricing freedom.
The first hike in petrol price in over three-and-a-half months and the second rise in diesel rates in one month exclude local sales tax or VAT and the increase for consumers at petrol pumps would be higher.
The increase in auto fuel prices, which come on back of a small hike in diesel price last month, is expected to fuel inflation that stood at three-year low of 6.2 percent in January.
Indian Oil Corporation (IOC), the nation's largest fuel retailer, announced an increase of Rs 1.50 per litre in petrol price as international benchmark oil prices climbed 7.5 percent.
The diesel rate was raised in line with last month's government decision to allow oil firms to raise prices in small dozes every month till over Rs 10 a litre loss on sale of India's most consumed fuel is totally eliminated.
Even after today's increase and a similar hike effected on January 18, oil firms will continue to lose Rs 10.27 a litre on diesel as cost of raw material (crude oil) has risen by 4 percent to USD 113.24 per barrel.
Rates will vary by a few paise on petrol pumps owned by Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL) as state-owned firms maintain differential rates to avoid being accused of acting as a cartel.
Petrol price was last revised on January 18 when the rate was cut by 25 paise a litre. After including VAT, this translated into a reduction of 30 paise to Rs 67.26 a litre in Delhi.
The reduction in rates on that day coincided with the government decision to give oil firms freedom to raise diesel prices in small monthly doses to eliminate all of the losses on the fuel. Oil firms hiked diesel price on that day by 45 paise, which after including VAT led to a 50-paise increase to Rs 47.65 a litre in Delhi.
The price of petrol was last hiked on October 27 when rates went up by 29 paise after government raised commission paid to petrol pump dealers.
IOC said crude oil price has increased from USD 109.08 per barrel at the time of last revision on January 18 to USD 113.24, while international gasoline or petrol prices have risen from USD 119.59 a barrel to USD 128.57.
State-owned companies have been "compelled to pass on the increase in petrol prices to consumers as the they have already suffered losses on sale of petrol so far and trends in international oil market as well as rupee-US dollar exchange rate indicate continued strength."
In fact, currently petrol prices are hovering around USD 132.80 per barrel. "The trends of international oil prices and INR-USD exchange rate shall be closely monitored and the same shall be reflected in future price changes," IOC said in statement.
The company said diesel prices were last revised upward by Rs 0.45 per litre (excluding VAT) on January 18, which resulted in losses on sale of nation's most consumed fuel reducing to Rs 9.15 per litre.
"However, since the last price revision, international diesel prices have also shown continued uptrend. As a result, under-recovery (loss) has gone up to Rs 10.72 per litre which now, with current upward revision of HSD prices by Rs 0.45 per litre, shall stand reduced to Rs 10.27," it said.
In addition to loss on sale of diesel, state-owned fuel retailers are losing Rs 31.60 per litre on kerosene and Rs 481 per 14.2-kg cylinder of domestic cooking gas (LPG).
"Projected under-recovery of IOC on three sensitive products is expected to cross Rs 86,000 crore and of the industry (IOC plus BPCL and HPCL) beyond Rs 1,63,000 crore during current year," the statement added.
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