India is poised for a moderate increase in fuel prices as early as November, according to Alexandra Hermann Prasad, lead economist at Oxford Economics. This strategic timing aims to implement price adjustments before election campaigning intensifies for several key state polls scheduled for early next year.
The economist highlighted November as potentially the last practical opportunity for authorities to raise pump prices. States like Uttar Pradesh and Punjab, among five of seven going to elections, are set to vote between March and May, making price hikes politically sensitive closer to those dates.
Potential Hike and Inflationary Impact
The anticipated fuel price increase could be roughly half the magnitude of the cumulative 7.5% hike observed in May, which was previously implemented in response to global events. Such an adjustment is projected to elevate India's retail inflation to 6.2% for the October-December quarter and 6.5% in the first three months of 2027. Both figures would surpass the Reserve Bank of India’s (RBI) target range of 2-6%.
Oxford Economics' inflation forecasts are notably higher than the central bank's own estimates. The RBI, in its recent monetary policy review, projected inflation at 6% for the October-December quarter, easing to 5.7% from January to March. Should fuel prices remain unchanged, Oxford Economics suggests inflation projections could decrease by 10-30 basis points in the coming quarters, though price pressures would still persist.
RBI's Policy Implications
Persistent inflation, even without a November fuel price hike, could prompt the RBI to consider further monetary tightening. Following a quarter-point increase in October, the central bank might raise interest rates by another 25 basis points at both its December and February policy meetings, according to Oxford Economics.
September saw inflation rise to 5.54%, marking its highest level since late 2024, up from 4.83% in August. This trend underscores the challenges in managing price stability amidst various economic pressures.
Rupee Stability and External Pressures
Hermann Prasad also commented on the stability of the Indian Rupee. She noted that while the RBI's recent interventions in the currency market are helpful in containing volatility, sustained stability remains a challenge. Elevated global oil prices and ongoing external financing pressures mean that intervention alone is unlikely to secure lasting currency strength.
Aviation Sector Grapples with Fuel Costs
In a related development, Aviation Minister Ram Mohan Naidu acknowledged ongoing discussions with airlines to ensure reasonable ticket prices. This task is complicated by the volatile nature of jet fuel costs. Naidu stressed the need for cooperation from Oil Marketing Companies (OMCs) and airlines to develop sustainable solutions, indicating the ministry's role in facilitating these critical dialogues among stakeholders.