The price of diesel hit triple digits for the first time in Maharashtra on March 30. Although this is expected, as fuel prices have been rising steadily for some time, it seems to have a psychological effect on freight carriers. “There are almost 20 million people connected to the transport industry. If costs continue to rise and are not passed on, small operators will not be able to support themselves, leading to increased unemployment,” said Bal Malkit Singh, Chairman of the All India Motor Central Committee. Transportation Congress.
Fuel prices had been frozen from November 2021 to February 2022, likely due to assembly elections in some crucial states. But starting March 21, oil marketing companies raised gasoline and diesel prices almost daily amid rising global crude prices due to Russia’s invasion of Ukraine. “Diesel accounts for about 65% of our costs,” Singh said. “Eventually there comes a time when they become unbearable. We waited and watched where this rise would stop. But the cost of transport will increase by more than 15%”.
This is bad news for everyone. Rising transportation costs will drive up the cost of everything from cars and consumer durables to groceries and vegetables. “It’s a double whammy for us,” said a delivery van operator. “First we have to pay more for fuel, then we pay more for daily necessities.”
The price headwinds follow broader inflationary pressure already seen across all sectors. Consumer goods companies, for example, have repeatedly raised prices in recent months; first due to supply disruptions caused by the pandemic, then the Russian-Ukrainian conflict.
Refined sunflower constitutes 10% of India’s consumption of 240 lakh tonnes of edible oils, and Ukraine and Russia account for up to 90% of India’s annual crude sunflower oil needs, according to the agency. CRISIL rating. Palm oil prices are also on the boil as Indonesia, a major producer, cut exports to control domestic prices. In February, sunflower oil prices rose 4%, peanut oil 1% and mustard oil 9% month-on-month, platform data showed. Bizom retail intelligence. Compared to pre-pandemic levels, sunflower oil is up 50%, palm oil 23% and soybean oil 17%.
Palm oil is a key ingredient in soaps, detergents and shampoos. It is also a major ingredient in the snack and bakery industry. “The Russian-Ukrainian crisis sees oil and logistics prices rise further, putting further pressure on the profitability of FMCG companies. This drives up the prices of food and non-food products that use petroleum as a key ingredient,” said Akshay D’Souza, Head of Growth and Insights at Bizom.
In March, Hindustan Unilever, India’s largest maker of consumer goods, raised prices for soaps and detergents by 3-5%. It had raised prices in February across its entire product portfolio. Over the past month, Amul and Mother Dairy have raised milk prices. Prices for all food items, from coffee to cookies, have hardened.
Consumer goods companies aren’t the only ones to suffer. Builders are worried about the sharp rise in the cost of cement and steel. Electricity and freight account for 50-55% of the cement industry’s total operating cost, and therefore soaring diesel and coal prices are likely to have a significant impact on their revenues, a said Abhishek Lodhiya, principal analyst at Yes Securities.
Cement prices increased in many regions during the January-March quarter. In western and southern India, prices were up 9% from a year ago, while in central and eastern India, prices were up 1% from a year ago. 2%. They can go up if companies try to maintain their profit margins. “Out of every $20 per tonne increase in fuel cost, a price increase of 3%-5% (Rs10-17 per bag) has become imperative to maintain EBITDA (earnings before interest, tax, depreciation and amortization) per tonne to third quarters levels,” Lodhiya said.
Real estate developers say they are considering various measures to counter rising costs, including raising prices for unsold units by 10 to 15 percent. “Developers have been absorbing the extra cost for a long time and will now consider passing it on to homebuyers as they have no choice,” said Dhaval Ajmera, secretary of industry body CREDAI-MCHI.
The rising cost of steel, aluminum and other raw materials has forced several automakers to raise prices. Tata Motors, for example, recently increased the prices of its commercial vehicles by 2% to 2.5%. Toyota Kirloskar raised prices by up to 4% on April 1.
All of this is on top of India’s runaway inflation. Sonal Varma, MD and chief economist at Nomura, sees headline inflation continuing to exceed the Reserve Bank’s comfort range of 2% to 6% for much of 2022 and averaging around 6.3% d one year to the next. There are also fiscal risks for India. A near doubling of global fertilizer prices could lead to an increase in fertilizer subsidies of 0.3% of GDP over the amount budgeted, Varma said.
“With oil holding above $100 a barrel and other commodity pressures remaining intact, the current account deficit-to-GDP ratio could reach 2.8% to 3% of GDP over the next fiscal year 2022-23,” said Madhavi Arora, chief economist at Emkay. Global financial services. “The capital account also remains delicate, implying that the balance of payments could return to a deep deficit of $45 billion in FY23 after an expected $40 billion in FY22.”