The decision sparked an immediate protest from UPA partner Trinamool Congress. Party leader Mukul Roy is reported to have conveyed the party`s opposition to the move to finance minister Pranab Mukherjee.

Oil companies had last raised petrol price by Rs 5 a litre on May 15. Before that, they had twice revised prices in January by Rs 2.50 a litre. Prices went up marginally due to an increase in dealer margin. Petrol prices vary from city to city depending on VAT and other local levies

Oil companies argue that a fall in the rupee against the US dollar increased their cost of crude, forcing them to raise the price.

But some sections in the government as well as analysts are not buying this. They say that the rupee`s movement in recent days does not warrant such a steep hike, especially when inflation is near double digits. Latest data shows inflation, as measured by the wholesale price index, stood at 9.78% in August. It has remained above the 9% mark for nine consecutive months.

Oil company executives counter this by saying the present petrol price of Rs 63.70 per litre corresponds to crude price of about $103 per barrel but the mix of crude India buys oil is ruling at $111 per barrel. This difference, coupled with the rupee`s decline, increased their losses.

The executives say every Re 1 increase in the dollar exchange rate raises their losses by around Rs 9,000 crore a year. The impact due to the exchange rate is 48 paise and due to increase in international prices is Rs 1.72 per litre. The balance impact of 53 paise is due to VAT. The increase is Rs 3.14 per litre in Delhi.

"We were losing Rs 2.61 per litre or Rs 15 crore per day on sale of petrol. After adding sales tax or VAT, the hike needed to level domestic rates with international prices came to Rs 3.14 per litre in Delhi," an executive said.

Economists said the sharp depreciation of the rupee against the US dollar forced the firms to raise prices. "Although it is not going to pressurize overall inflation significantly, it will be a burden on the middle class particularly those who use petrol driven vehicles," said D K Joshi, chief economist at ratings agency Crisil. Petrol accounts for 1.09% in the wholesale price index (WPI) and therefore has a limited impact on overall inflation.

Diesel accounts for 4.67% of WPI and any increase in prices impacts inflation significantly. Petrol prices were freed in June last year but the government continues to control diesel and cooking gas prices.

Consumers said the increase was unjustified and imposed a fresh burden. "It is becoming unbearable and how can the common man face such sharp increase. It will add to already high expenses," said Deepak Majumdar.

Source: Times of India, India,  dated 16/09/2011