The ascendency of India as an economic world power

Indian government has recently curtailed the country’s oil price for the second time within three months in order to keep the increasing inflation rate under control. Indian economy has gone through a high inflation rate over the last year. Now, the ruling coalition government (headed by Prime Minister Manmohan Singh) is keen to put inflation rate under control. However, some observes feel that the upcoming elections in three important states can play an important role behind the decision to decrease the price of oil.

Reuters reported:

The move, which reduced retail prices of petrol by 4.5 percent and diesel by 3.2 percent, came as data showed wholesale prices, India's most widely watched measure of inflation, rising at an annual rate of 6.73 percent.

Shares in state-run refiners ended more than 1 percent down while government bond prices rose after the announcement.

Oil Minister Murli Deora said the price cut was driven partly by the recent dip in global oil prices and the ruling Congress Party's desire to protect people from inflation.

"Keeping the totality of circumstances in mind, it was decided that the prices of petrol and diesel will be reduced," Deora said.

Economists say the Indian economy, Asia's fourth largest, is in danger of overheating as it clocks an estimated 9.2 percent growth rate for the fiscal year ending in March. The central bank has also been trying to tamp down price pressures, raising banks' cash reserve requirements on Tuesday to dampen lending.

Such reduction in oil price seems to have both merits and demerits. The poor people will be able to buy oil for a less price and the government refiners will also be beneficial whereas the private refiners will be in big trouble.

The report also stated:

Crude prices hovered near $58 per barrel on Thursday after a fall of nearly 2 percent on Wednesday.

An official from state-run Indian Oil Corp., the country's top refiner, said the price cut was likely to cost the firm 3.9 billion rupees ($88.5 million) in revenues by the end of March.

IOC shares closed 1.5 percent lower, while Hindustan Petroleum Corp. Ltd. fell 1.1 percent, Bharat Petroleum Corp. Ltd. dropped 1.4 percent and IBP Co. Ltd. finished 0.4 percent weaker.

I think it is a good initiative taken by the government in order to control the inflation. Secondly, the price of oil is now stable in the international market. So, this decrease will help everyone.