India seems to have weathered one of the worst oil shocks relatively unharmed. Coordinated action within the government, first through a massive cut in excise duties, followed by OMCs holding fuel prices steady for more than two months, and various measures to protect retail LPG and CNG consumers, helped stabilise public confidence and prevent large-scale panic.In fact, even ATF prices were not fully passed through. The government initially capped the price increase at 25% for domestic carriers, shielding air passengers from steep fare hikes. This was followed by Cabinet approval of a ₹10,000 crore ATF price stabilisation fund to help airlines purchase jet fuel from OMCs at a fixed rate, with OMCs using the fund to offset losses incurred on below-cost sales to airlines.
When a fuel price revision became unavoidable, the government limited the increase to around ₹7 per litre, implemented in four tranches. Consider this: the rupee itself fell by approximately 9% against the US dollar between January and May this year, adding to the already elevated costs faced by OMCs, yet pump prices rose by only 7%. In fact, many officials questioned the limited increase, saying prices should have gone up by at least ₹10 per litre, if not more.
LPG emerged as the most vulnerable fuel during the supply disruption. The government issued the LPG Control Order within eight days, directing all refineries to maximise LPG production. Refineries were reconfigured to produce LPG despite not having previously manufactured the fuel. The measures delivered results: domestic LPG output surged from 35,000 tonnes per day to 54,000 tonnes per day within a week, substantially exceeding the residual import requirement of around 30,000 metric tonnes per day.
With the supply situation stabilising, the government on June 25 lifted restrictions on commercial and bulk LPG supplies, restoring non-domestic LPG availability to pre-crisis levels while maintaining indigenous production at no less than 40 TMT a day.On the pricing front, consumers have been protected. While the import-linked cost of a 14.2 kg cylinder is above ₹1,600, the regulated price has been held at ₹942 and at ₹642 for Ujjwala Yojana beneficiaries. This translates into an under-recovery of ₹658 per domestic cylinder and ₹958 per Ujjwala cylinder.Also Read: Goldman Sachs lifts India’s GDP growth forecast on easing West Asia tensionsThe steep cost to the exchequer, and to the OMCs in particular, is obvious. Despite crude oil softening sharply, current-quarter losses for OMCs are likely to be in the range of ₹1 lakh crore to ₹1.2 lakh crore, with daily retail under-recoveries still estimated at around ₹650 crore.The losses being carried now reflect crude oil and LPG purchased during the disruption at significantly higher prices, the impact of which will surface in later results. IOCL alone carries 40-45 million barrels of crude inventory, equivalent to about 28 days of cover.While the immediate crisis has eased, the measures adopted by the Indian government could serve as a useful playbook for managing future energy disruptions.
Source link
