Move leaves governing alliance vulnerable, with inflation already in double digits and an interest rate hike likely
The decision will further stoke inflation, which is already running in double digits, and leave the alliance politically vulnerable weeks before the monsoon session of Parliament.
The long-awaited decision will help the government trim its fiscal deficit, strengthen the finances of oil marketing companies (OMCs) and promote the use of more energy-efficient technologies.
Petrol prices went up by Rs3.50 per litre, diesel by Rs2 per litre, kerosene by Rs3 per litre and LPG by Rs35 per cylinder at midnight.
Fears that higher inflation could force the Reserve Bank of India to raise interest rates earlier than expected spooked the bond market. Yields on benchmark 10-year paper opened at 7.59%, jumped to 7.68% intraday and closed at 7.65%.
Importantly, the government has retained the option to intervene if international oil prices turn volatile. Petroleum secretary S. Sundareshan said: “While the periodicity of revision in petrol prices has not been fixed as petrol is a sensitive item, in cases of extreme volatility of international prices of crude, the government will intervene.”
Courtesy: LiveMint.com & HindustanTimes.com