Government defers gas price hike, is it a good move?

The Government's decision to defer gas price hike for three months has sharply impacted the oil and gas stocks. Reliance Industries (RIL) and ONGC stocks plunged as the Cabinet Committee on Economic Affairs (CCEA) deferred revision in natural gas prices by three months, pending a comprehensive review.

The prime reason given in the Cabinet Committee on Economic Affairs(CCEA) for deferring the gas price hike for three months was the economic and political consequences associated with it which was approved by the UPA Government in December 2013. Another reason given by the CCEA is that it will have adverse impact on the consumers as it will raise the price of fertilizer, electricity, piped gas used for cooking and natural gas used by taxis and buses.

Also at a time when Assembly elections in Delhi and other States are round the corner, the BJP Government may lose its grip when the economy is in a jittery state followed by high inflation, weak monsoon due to EL Nino weather phenomenon and the recent Iraq crisis which is already hurting oil prices. The NDA Government is already facing heat from all spectrum over recent 14% hike in railway fare and further hike in gas prices would have adverse effect on the common man.

Surge in gas price would lead to 45 paise per unit rise in electricity tariff

The UPA Government had approved of raising gas prices with effect from April 1 this year but stopped it due to implementation of Model Code of Conduct in the general election. It is estimated that every dollar increase in gas price would lead to Rs 1370 per tonne rise in urea production cost and 45 paise per unit in electricity tariff. The aam admi will have to pay the price for it which will ultimately result in high inflation.

The Government's move to hike gas price also had an impact of the market as 30-share Sensex and 18 stocks closed with losses led by oil and gas stocks, while 12 others ended higher. The 50-share NSE index Nifty dipped below the crucial 7,500 mark by losing 76.05 points, or 1 per cent, at 7,493.20 after shuttling between 7,570.20 and 7,481.30 intra-day.

"Overall market sentiment was hit as the Government decided to defer revision in gas prices for three months. This has been taken negatively by the market, as it was contrary to the general expectations," said Rakesh Goyal, Senior vice president, Bonanza Portfolio. Shares of state-run ONGC plunged by 5.89 per cent and RIL fell 3.70 per cent. Oil marketing companies BPCL, HPCL and Indian Oil too were under selling pressure.

"Sentiment further deteriorated after an update on weak monsoon by IMD," said Jayant Manglik, President-retail distribution, Religare Securities. Even though stock market was effected, overall the the Government's move is justified which has taken responsible step by deferring the price hike and not coming into pressure of the last Government in power.