India raises fuel prices 3%

India raised petrol and diesel prices on Friday for the first time in four years, lifting pump rates by 3 rupees a litre as higher crude costs from the war linked to Iran began to hit domestic retailers. The increase took petrol to 97.77 rupees a litre and diesel to 90.67 rupees, according to reports on May 15. The move came after days of public appeals from Prime Minister Narendra Modi for voluntary restraint in fuel use and other import-heavy spending. It also coincided with Modi’s trip to the United Arab Emirates, where India signed new energy and infrastructure agreements aimed at shoring up supply lines and reserves. ### Why did New Delhi raise prices now? May 15 was the point at which India’s state-run fuel retailers began passing through part of the rise in global crude prices after absorbing losses for weeks, Bloomberg reported. Al Jazeera, citing Reuters and the Associated Press, said the government announced the 3-rupee increase as it moved to offset losses triggered by tighter supply and higher import costs. Bloomberg described it as India’s first fuel price increase in four years. (aljazeera.com) India imports most of the oil it consumes, leaving it exposed when Middle East supply routes are disrupted. Al Jazeera reported that about 90% of the country’s oil comes from overseas and that roughly half of its usual crude supplies transit the Strait of Hormuz. CNBC reported on May 11 that India relies on the strait for about half of its crude imports, 60% of liquefied natural gas imports and almost all liquefied petroleum gas supplies. (bloomberg.com) ### What exactly did Modi ask people to do? Narendra Modi said on May 11 that Indians should curb fuel use, reduce overseas travel and pause gold purchases as the conflict’s economic impact spread, CNBC reported. He urged people to use public transport, work from home and carpool. Al Jazeera reported that Modi described saving fuel as an act of “patriotism.” (aljazeera.com) May 13 brought a clarification from government sources after Modi’s remarks prompted speculation about formal austerity. India Today reported that officials said the appeal was voluntary and meant to protect foreign exchange reserves rather than signal spending cuts, subsidy reductions or other compulsory tightening. The same report said officials framed the message as “responsible consumption,” not a formal austerity program. (cnbc.com) ### How big was the increase at the pump? The increase was 3 rupees per litre for both petrol and diesel, according to Al Jazeera and Economic Times. Al Jazeera reported that petrol rose to 97.77 rupees a litre and diesel to 90.67 rupees. Economic Times said fuel prices across India had risen by up to 3 rupees per litre as state-run retailers responded to surging crude prices and pressure on margins. (indiatoday.in) Bloomberg reported that some economists had expected a larger initial move, suggesting the government and retailers limited the pass-through for now. That implies, rather than proves, that New Delhi is trying to spread the adjustment over time while crude markets remain volatile. (aljazeera.com) ### What did Modi secure in the UAE? India and the UAE signed agreements on May 15 covering strategic petroleum reserves, liquefied petroleum gas supplies, defence cooperation and infrastructure investment during Modi’s visit to Abu Dhabi, Economic Times reported. The UAE also announced $5 billion in investments in Indian infrastructure and financial institutions. The agreements were exchanged in the presence of Modi and UAE President Sheikh Mohammed bin Zayed Al Nahyan. (bloomberg.com) Economic Times separately reported that UAE participation in India’s strategic petroleum reserves would rise to 30 million barrels. That report also said the two sides explored strategic gas storage cooperation and signed a long-term LPG supply pact. (economictimes.indiatimes.com) ### What comes next for households and policymakers? June is when the fuel increase is expected to begin showing up in consumer inflation, according to Bloomberg. Barclays economists estimated the fuel move would add about 15 basis points to inflation, Bloomberg reported, while warning that transport and other costs would filter through more broadly. (economictimes.indiatimes.com) May 15 also left open the question of whether this was the full adjustment. Bloomberg reported that economists expected the 3-rupee increase to cover only part of the losses incurred by state-owned oil marketing companies. India’s next signals are likely to come from pump-price decisions, inflation data due from June onward, and the implementation of the UAE petroleum reserve and LPG agreements announced during Modi’s visit. (bloomberg.com)