India’s move to cut cooking gas prices could soften inflation and shift focus toward a reduction in gasoline and diesel prices ahead of some major festivals and key elections, according to Citigroup Inc.
The government’s decision to reduce liquefied petroleum gas could lower inflation by around 30 basis points, economists Samiran Chakraborty and Baqar M. Zaidi said in a note Wednesday. The latest action, along with a drop in tomato prices, raises the possibility of inflation falling below 6% in September, they said.
The authorities have been taking active measures to cool retail prices that climbed to a 15-month high in July, mainly on rising food costs. India on Tuesday lowered prices of LPG cylinders, each containing 14.2 kilograms of the gas, by 200 rupees , giving some relief to some 300 million consumers. India has already tightened exports of staples such as rice, wheat and onions, to bring down food prices and keep household budgets in check.
“In the backdrop of rural economy stress and the general K-shaped recovery, a reduction in cooking gas price could be positive for consumer sentiment,” they said. “The key thing to watch would be any spike in onion prices due to possible demand-supply shortfall in September.” As many as five states, including Rajasthan, Madhya Pradesh and Chhattisgarh, will head for polls in the last quarter of this year, followed by a national election in early 2024, when Prime Minister Narendra Modi will seek a third term in the office. There could be discussions on more fiscal measures to control inflation and support rural incomes, the economists said.
Pump prices of gasoline and diesel have remained unchanged for more than a year despite volatility in global crude prices. Any reduction in fuel costs may need to come via excise duty cuts, which cannot be ruled out ahead of polls, they said.
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