Business

Fuel price hike catches Indian commuters off guard

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Media captionWatch: Ashish Razdan is concerned about his increasingly costly commute to work

Each day Ashish Razdan drives to work from his home in Navi Mumbai to his office in Andheri.

The 26km journey takes the young IT worker at least an hour in each direction and it is a commute that has become increasingly expensive.

When Ashish decided to buy his car three years ago, running costs were much lower.

"It's gone up I would say by 20-22 rupees," he says. "If I talk about my pocket every month or so I have to pay around 8,000 rupees ($176; £108)… which is a huge cost for me."

In Mumbai a litre of petrol now costs an average of 68.33 rupees per litre.

The government sets the price of most fuels, but since it deregulated petrol prices in June last year, a litre now costs around 22% more.

Ashish says he sometimes wishes he had bought a diesel car instead. He's been looking at alternative ways to save on fuel costs.

One of those is car-pooling. But such schemes are yet to gain much momentum in Mumbai, and so far he has not managed to share the journey.

Greener and cheaper

In the Mumbai suburb of Goregaon West, Ramkumar Gurumoorthy is at a small garage called Suman Auto.

He is getting his petrol car converted so that it can run on compressed natural gas (CNG).

He explained why he was switching fuel: "Initially when I bought a petrol car it was more affordable at that time," he says.

"But now the prices are going up and up. I thought to turn to CNG which is more economical and better for our day-to-day usage," he adds.

Even with the cost of the conversion, Ramkumar says he expects to save money.

All auto-rickshaws and most taxis in Mumbai operate on CNG. There is also a growing number of private car owners switching to the fuel.

At Greenglobe Fuel Solutions many cars are being fitted with CNG kits. These enable petrol and diesel vehicles to run on compressed natural gas as well, so they can operate on a dual-fuel basis.

The manager Paresh Vira says when fuel prices go up the company sees an upturn in business.

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Media captionWatch: Paresh Vira explains how a CNG kit works.

"Suppose on the routine days we are switching over some five or seven vehicles. The day the price hike is announced, the next 10 or 15 days we are totally booked," he says.

Greenglobe claims that car owners can save 40 to 70% on petrol costs.

While CNG is cheaper and has cleaner emissions, it has drawbacks, too. In India it's widely available only in 10-to-12 major cities. Longer journeys away from those conurbations, therefore, require the original diesel or petrol fuel.

No surprise

Three state-owned corporations - Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum Corporation - provide most of the country's petroleum.

While the firms are supposedly free to set petrol prices at market rates, they have made a move to put them up only now that assembly elections are out of the way.

The latest petrol price rise was much expected. However the 8.3% increase is the steepest so far.

When it comes to diesel, kerosene and cooking gas the government still maintains a tight rein.

A ministerial panel had been expected to deliberate over fuel prices last week. However, as yet no further price rises have been announced.

Higher fuel costs are very unpopular among Indians, and there have already been a couple of small-scale protests.

A lorry-drivers' association has also threatened strike action should diesel prices rise.

Loss-making

However, some experts suggest that more fuel price hikes are inevitable.

"There'll be more price rises for sure, because these companies cannot take losses beyond a point," says Madhu Nainan, editor-in-chief of industry bulletin Petrowatch.

"They borrow at market rates to sustain their day-to-day operations, to expand their businesses and keep pace with the rising demand for fuel," he adds.

India imports approximately 80% of its oil requirements.

The state-run oil firms sell petrol, diesel, kerosene and cooking gas, at prices below what it costs to bring them to the pump.

In return they receive a subsidy from the government, which partly offsets their retail losses.

Mr Nainan adds: "If they can't get a price that is more or less close to the international price, then they'll end up making huge losses and be unsustainable in the long run."

Raising the prices of other fuels besides petrol could help reduce the government's subsidy burden and alleviate some of the losses imposed on India's oil companies.

However, raising prices also risks fanning another problem facing India's economy.

It is already contending with a high level of inflation.

Any further fuel price rises would also be very unpopular and could leave India's motorists feeling the pinch.

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