Why India is bucking the populist trend by refusing to cut fuel prices

Why India is bucking the populist trend by refusing to cut fuel prices

India, the world’s fastest growing oil consumer, is bucking an emerging market trend of populist measures to curb surging oil prices. While governments in Indonesia, Brazil and elsewhere are cutting or freezing prices, India is standing its ground on gasoline and diesel costs even after they rose as much as 16% this year.

India has, so far, resisted the temptation to give relief to consumers and keeping a close watch on fiscal deficit goal, a move that helped Prime Minister Narendra Modi win a credit-rating upgrade from Moody’s Investors Service last year. The upshot is an acceleration in inflation that would worry an already-hawkish central bank.

Authorities “have been very firm” on sticking to reform measures to allow domestic prices to be market determined, said Vikas Halan, a senior vice president at Moody’s in Singapore. “It doesn’t look like the government is thinking about bringing back some kind of price regulations.”

Inflation has picked up sharply this year on the back of higher fuel prices, prompting the Reserve Bank of India (RBI) to raise interest rates last month. Data on Thursday showed consumer prices rose 5% in June from a year ago, the fastest pace in five months. Read More

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