India’s Fuel Retailers to Cut Diesel and Gasoline Prices Ahead of Polls

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India’s state-run fuel retailers cut diesel and gasoline prices on Friday, the first rate revision in nearly two years coming just a few weeks ahead of the national elections. The move led to a sharp plunge in their share prices.

The state-run companies, controlling about 90% of the market, cut diesel and gasoline prices by 2 rupees (2 cents) per liter each, as announced by India’s Oil Minister Hardeep Singh Puri in a post on X on Thursday evening. The price reduction will abate operating cost for 5.8 million heavy vehicles such as trucks that run on diesel, 60 million cars and 270 million scooters using gasoline, the oil ministry added in a separate post on the social media platform.

After the reduction, effective Friday, pump prices for diesel are 87.62 rupees ($1.06) a liter in Delhi, while gasoline costs 94.72 rupees. Prices vary across India due to local taxes.

Stocks of India’s largest fuel retailers—-Indian Oil Corp., Bharat Petroleum Corp Ltd. and Hindustan Petroleum Corp Ltd.—-nosedived in Mumbai trading. Hindustan Petroleum’s shares fell as much as 9.8%, heading for its worst day since March 2020. Shares of Indian Oil and Bharat Petroleum slumped over 8% each.

Goldman Sachs analysts cut core inflation forecast for the calendar year 2024 by 25 basis points to 3.9% on year due to the expected impacts of the price cuts.

The country’s refiners last revised prices in May 2022 after a cut in taxes by the Modi’s government. Though they are free to adjust fuel prices daily, in-line with international benchmark rates, the companies have kept rates frozen as “they are responsible corporate citizens,” Puri said earlier this month.

Last week, Prime Minister Narendra Modi announced reducing prices of liquefied petroleum gas, which is used for cooking, on International Women’s Day.

While refiners have been losing money on diesel sales due to the rate freeze, they were profitable on gasoline sales. The latest cut in price will further erode their profitability but will bring relief to households battling inflation.

The measure comes days ahead of the announcement of India’s national elections due in May.

--With assistance from Chiranjivi Chakraborty.

(Updates in paragraph 4 and 5 with details on price movements and analyst comment)

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