Fuel Prices Set To Rise Further? Top Economists Debate India’s Oil Crisis | The Numbers Game

Added: 2026-05-28

[00:00:00]I want to start by looking at a graph on petrol and diesel prices. This of course everyone watching at this time acutely aware of, but what you need to look at here is the extent of under recovery for oil marketing companies and the extent to which oil prices will need to be increased. Petrol and diesel prices will need to be increased for [music] these companies to start breaking even. So, petrol from the 14th of May in Delhi gone up from 94.77 to 102.12. [music] Break even starts roughly broad stroke calculations at about 115.12. [music] Let's for a moment take a look at diesel and then I'll ask our guest the question whether the government and the oil marketing companies are on the right track in terms of how the burden is being passed on to consumers and the extent to which uh petrol and diesel can become [music] more expensive given what's happening globally. This is diesel on your screen right now [music] from 87.67 rupees on the 14th of May to 95.2 rupees uh on the 25th of May. Break even starts at 108.2. So, still [music] you've got about a 13 rupee deficit for the oil marketing companies, a subsidy which these oil marketing companies are bearing because they're keeping petrol and diesel prices low. So, let's just on this point start by going across to our guest. I'll start by going across to Surjit Bhalla first on the government's approach, the oil ministry's approach at the moment on passing on uh passing on the fuel uh burden to consumers. Four hikes in the last uh in the month of May.

[00:01:31]Are we on the right uh path in terms of how this is being pushed on to consumers? Do you see this continue? At what point will the government say, "If we take it any further, it'll break [music] it'll break the back of the Indian consumer and therefore let's pause it." Let's get you off uh by talking about the manner in which petrol and diesel prices are going up and share with our viewers your insights on the extent to which you think petrol [music] and diesel prices could go up further?

[00:01:57]So, first you mentioned correctly, this is a global problem.

[00:02:02]This is not a individual country problem.

[00:02:06]And this problem has come up now, Feb- starting in February, uh or maybe in March. So, the response has to take that into account. We are not unique. We are not the only ones facing this problem. And I think so far the government, the fact that it has agreed to hike up the prices and perhaps even go up, there's no reason why we can't go up to 115 uh for them to let it. I think the larger question, which I hope we address, what happens when we get back to normal, the West Asian war is over, then what should the respective policies be? I think that is much more critical than the reaction to the very short term, which there really is not much to say other than we should move up uh towards the international price or the break-even price.

[00:03:05]Gupta, this is where it's hitting consumers. This is where it's hitting every person watching NDTV. They're alarmed by the fact that uh prices have been hiked up four times in the past few days, but the reality is this is part of a much larger global problem. The government really has no option. But you're also seeing the kind of political attacks coming the government's way. To what extent do you think the government can increase? Because break-even is still about 13 rupees per liter away, at least uh for diesel, for example, and uh same for petrol. How much do you think the government can increase petrol and diesel prices by before inviting a serious backlash?

[00:03:40]So, I think, look, Um >> Hush. We have had a large cushion uh in terms of our prices were already very, very high related to what the other countries have done. We were taxing the hell out of petrol consumption etc. So, in that sense, maybe we have to move less than other countries have to do.

[00:04:02]But, I would say given that the rest of the world is moving about 25 40% we should be at the lower end of that scale, perhaps 20 25% but have in mind I think the way to handle it if but if somebody were to ask me is that we recognize it's a problem, we recognize it's likely to be a short-term problem, but you know, people have been saying the war is going to end war is going to end tomorrow, but it's not. But, then say that because of this crisis international crisis, every country in the world is facing this, we have to do our share. Okay. Uh Dr. Ratin Roy, your initial thoughts on the manner in which the fuel price hikes have been passed on to the consumers, the extent to which this can go on, and the uncertainty about when the war ends if it ends, and what happens to fuel prices uh once it ends and how long they stay high before they start coming low, all those massive uncertainties in which these decisions are being taken. Well, unlike many people in India, I hate talking in the future tense.

[00:05:11]So, we can talk about that later, but let me stick to the present tense for a minute. I love the present tense.

[00:05:16]Uh at present, there are we know two things. One, that the price of oil is going up.

[00:05:21]We also know that the impact of that, not just on consumers' pockets, but also on the balance of payments of the current account deficit, is likely to be high and accelerating the higher the price of oil goes. That is, if it goes from more than $100 a barrel internationally up to 120, we will then start have to having to worry about the macroeconomy. We're not there yet.

[00:05:42]Uh and we also know, as Sujit said, that the government has a buffer. The government has the the government has a buffer which doesn't protect India, but can protect citizens temporarily from the full impact of the oil price hike, which is to lower excises on oil and diesel. Now, that will then impact on the government budget. We will have to then make do with the higher fiscal deficit or the government will have to cut some of its, you know, subsidies and compensatory expenditures that it has gotten the habit of giving. So, these are difficult decisions going forward, but what I'm doubting is that we should prepare for the long haul in terms of elevated oil prices. That's the intelligence I'm getting in London as well. No one is saying that even if the war stopped in in 15 days or a month, the unraveling of oil supplies will take anything less than 7 to 8 months because inventories have to be replenished, infrastructure has broken down that will have to be refurbished. Countries that are more powerful than us and richer than us will stockpile faster than we are able to. So, for all these reasons, we have to prepare for elevated oil prices. Now, the question is how much elevation can be passed on to the consumer? And here, the government has one bad option, which is what the old government did, the Congress, and I don't recommend that, which is to let the oil marketing companies make losses and worry about it tomorrow. No, don't do that. It's okay now as a cash flow issue if temporarily there are under recoveries. But within a fiscal year, I think government has to make up for that. The government can make up for that essentially by passing on the the wholesale oil price to everybody, including on fertilizers, and then can take compensatory action by imposing subsidies, by by giving out subsidies as it has done very effectively through the DBT mechanism to particular groups of the population that it feels will be disproportionately hurt, which are unfortunately not the viewers of NDTV.

[00:07:31]I mean, a completely different class of people.

[00:07:33]People who are less fortunate than those who watch NDTV, people who have to make do with much less on a daily basis, people who worry about the impact of fertilizer on food prices. All these things can be contemplated as in terms of a larger strategy. So, to conclude, the consume some consumers can be protected. There will be cost because this is a price shock.

[00:07:53]This price shock is not going in in the short run. And therefore, the government has to plan whether it takes this price shock on budget and to what extent and to what extent it is able to pass on the cost to the consumer while protecting vulnerable groups. Harsh Gupta.

[00:08:09]In the popular imagination, the saying goes that, you know, government ensured that consumers didn't have to bear extra fuel prices till the election season were on. The moment the election season is over, they're being passed on. They're not being passed on in one go. They're being passed on in a staggered step-by-step kind of fashion. But, the people who are watching and people who are having to pay the brunt are obviously upset. Has the government been able to reach out enough and explain why this is being done and also respond to the question about the extent to which you think petrol and diesel prices might have to go up because we're still seeing OMCs make massive under-recoveries and therefore, if they have to start at least breaking even, petrol and diesel needs to go up by more than 13 rupees even now.

[00:08:56]Uh thank you, Rahul. I think on the second question, I think your broad break evens are correct. Uh they need to go about about 10 to 15 rupees at current prices. So, there is no quibbling there.

[00:09:07]I think on the first question about being able to explain, I think any kind of economic tough decision is always difficult to explain. Ideally, we should be having completely deregulated prices of petrol and diesel. Um so that, uh you know, consumers, like they do in the US, they have daily varying prices and this is not a political discussion.

[00:09:30]Given that is not the case, the second best scenario is what the government is doing, which is to stagger it out, uh small raises, small raises, etc. And I think that is the right step to go because let us say the war ends in a couple of weeks or 1 month and suddenly crude is not $100 on the Brent.

[00:09:50]It's maybe $80 and then the break-even is lower. At that particular point, you don't want to then be seen as having over shot too much. But fully agree with the two earlier panelists that on this particular point, the government has to make sure that the price signal of imported energy is passed through.

[00:10:08]But I also agree with Dr. Bhalla that the broader discussion which is more important is how do we look at a balance of payments going forward once this immediate crisis is solved.