NEW DELHI State-run oil refiners have agreed to a partial rollback of last month's petrol price increase, a move that was expected after a public outcry over the steepest rise in the country's history.
With effect from Sunday, retail petrol prices will be cut by 2.02 rupees a litre including taxes in New Delhi, state-run Indian Oil Corp (IOC.NS), the biggest fuel retailer in the country, said in a statement.
The three state-run fuel retailers - including Bharat Petroleum Corp (BPCL.NS) and Hindustan Petroleum Corp (BPCL.NS) - tend to move their prices in tandem.
Last month, the companies raised petrol prices by 6.28 rupees a litre, excluding taxes. That translated into 7.54 rupees a litre increase after local taxes in Delhi. The Delhi state government later announced a tax relief, which would have restored increase to 6.28 rupees a litre, but tax cut is yet to be implemented.
Investors and economists had cheered the decision to raise petrol prices for the first time in six months, which allowed the companies to recover some of the losses they had racked up due to higher oil prices and a plunging rupee.
Every one rupee fall in value of the Indian currency against the dollar requires an increase of 0.77 rupees/litre in retail price of petrol, while every dollar decline in delivered prices of Singapore gasoline means prices need to go up by 0.34 rupees.
But the reform provoked dissent within the ruling Congress party-led coalition, furious street protests and a national strike on Thursday organised by opposition parties seeking to exploit popular anger with the increase.
Softening Singapore gasoline prices and global oil prices have partially offset the impact of a declining rupee, offering a window for a cut.
"Since (the) last pricing cycle, though international oil prices have decreased quite significantly, the (dollar-rupee) exchange rate has shown further deterioration," Indian Oil said in the statement, justifying the quantum of price cut.
The three state-run fuel retailers review gasoline prices every two weeks.
Company executives had earlier said that the prices could be revised by June 1 after a regular review of international oil, gasoline and foreign exchange rates.
But June 1 came and went with no change in retail prices amid speculation that the government had not wanted to be seen to be bowing to the opposition-organised protests.
The political backlash, however, has prompted the government to delay implementation of a much bigger reform sought by investors - increasing the price of diesel and kerosene, which are used by the poor and in public transport.
Any increase would fuel inflation at a time when Asia's third-biggest economy is slowing down.
While petrol accounts for around 10 percent of India's annual fuel consumption, diesel demand hovers around 40 percent. Cheaper prices have led to a surge in the demand of diesel cars, especially from a growing middle class.
(Reporting by Nidhi Verma; Editing by Daniel Magnowski and Mike Nesbit)