Rising demand and cuts in production by OPEC and Russia have led to an increase in crude prices which in turn has sent the diesel prices soaring. As of December 26, diesel price in Delhi was Rs 59.31 while in Kolkata, Mumbai and Chennai it was Rs 61.97, Rs 62.75 and 62.48, respectively.
The diesel prices in Kolkata and Chennai are highest since September 2014, while in Mumbai it is highest since October 3 this year.
In October, the government cut excise duty on petrol and diesel by Rs 2 per litre to moderate the relentless rise in fuel prices. In September, the crude prices rose after the shutdown of refineries in the United States due to hurricanes.
On Tuesday, petrol prices in Delhi, Kolkata and Chennai were the highest since November 16. Mumbai prices were the highest since October 10. Petrol was sold for Rs 69.63 a litre in Delhi.
The rise in fuel prices has a significant impact on the economy and inflation. The effect of diesel price hike can straightaway increase the price of day to day items like vegetables and fruits as transportation of these commodities directly depends on diesel price. Diesel is also used in power generation, so even that will add to the overall rise in the price of retail items.
Since India imports, 82% of crude oil requirement, the rise in crude price would expand India's import bill, boost inflation and leave little room for the Reserve Bank of India to cut interest rates.