India's government has introduced a fuel relief as prices at the pump rise inexorably, following soaring international benchmarks, Indian media report, citing the official statement by Finance Minister Arun Jaitley.
The move was made after consultation with local oil companies, which agreed to reduce prices by US$0.034 (2.5 rupees) per liter of gasoline and diesel, of which they will absorb US$0.014 (1 rupee) per liter of fuel, and the government will shoulder the rest by cutting excise duties on fuels.
The Finance Minister said, however, that the higher oil prices were not the only factor that prompted the decision: India was also getting hit by higher U.S. interest rates, although he added that only the country's current account deficit was swelling under the twin pressure of prices and rates, while the national fiscal deficit was enjoying the positive effects from direct tax collection rates.
The fuel price cut decision is only the latest in India's government efforts to cushion the blow from rising oil prices. Yesterday, media reported that the Modi government had allowed local companies affected by the rise in oil prices to borrow internationally up to US$10 billion.
India's current commercial borrowing rules prevent businesses from borrowing more than $750 million in foreign money-the previous limit as outlined in April by the Reserve Bank of India (RBI) as cited by Lexology.
Yet now that the higher oil prices have combined with a falling rupee after the latest quarterly economic growth figures turned out disappointing, with the deficit widening, India is facing a serious challenge in sustaining its growth while reducing the adverse impact of the latest oil market developments.
Asia's second-biggest economy and the fastest-growing is particularly vulnerable to the effects of oil market movements as it is dependent on imports of crude oil for over 80 percent of its consumption. Earlier today, Transport Minister Nitin Gadkari told media that the country will face an economic crisis if prices continue to rise.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More