MUMBAI: State-run Indian oil firms will raise petrol prices by nearly 5 percent from Friday, a move that eases their subsidy burden but adds near-term pressure to stubbornly high inflation in Asia's third-largest economy.
Hindustan Petroleum Corp Ltd, Bharat Petroleum Corp Ltd and Indian Oil Corp, which dominate fuel retailing in India, said they will increase their petrol prices by 3.14 rupees per litre.
The overall inflationary impact of the price increase is expected to be modest, at between 4 and 15 basis points, economists said. Petrol accounts for just 1.09 percent of the wholesale price index, while diesel, which is much more widely used, has a weight of 4.67 percent.
Oil companies in India have been free since June 2010 to set their own prices for petrol, which is considered a rich person's fuel.
Raising the petrol price is politically easier than lifting state-controlled diesel prices, which New Delhi did in June after months of delay.
India has been increasing fuel prices in order to ease its fiscal burden, but doing so is sensitive for Prime Minister Manmohan Singh's ruling Congress party, whose voter base is heavily rural and poor.
Singh's government has been on the back foot over persistent inflation as well as a slew of corruption scandals that have weakened its ability to push through reforms.
Inflation in India rose to 9.78 percent for August, data on Wednesday showed, its highest in 13 months, adding to expectations that India's central bank will raise interest rates on Friday for the 12th time since March 2010.
Reserve Bank of India Governor Duvvuri Subbarao has repeatedly called on New Delhi to improve its fiscal position to help manage inflation over the longer term.
Nitesh Ranjan, an economist with Union Bank of India, said the inflationary impact of the petrol price increase would be minimal and is positive from the central bank's perspective.
Copyright Reuters, 2011
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