From the news today (sorry, no link)
Reliance Industries has shut all of its 1,432 petrol pumps in the country after sales dropped to almost nil as it could not match the subsidized price offered by public sector players. The company owned less than 3% of the 36,936 petrol pumps in the country. Of the total retail outlets, state run Indian Oil, Bharat Petroleum and Hindustan Petroleum own 34,304 pumps, while the remaining belong to private sector Essar Oil and Shell India.
Â Â Â “Reliance has informed that sales at their retail outlets was negligible due to selling price differential between private and public sector ROs, leading to the closure of all their 1,432 pumps in the country with effect from March 15,” petroleum minister Murli Deora informed the Rajya Sabha on Tuesday.
Â Â Â Public sector currently sell petrol at a loss of Rs 13.97 a litre and diesel at a discount of Rs 20.97 per litre. This revenue loss is made up by the government through issue of oil bonds and subsidy share from upstream firms like ONGC and GAIL.
If this sounds ominous,Â Goldman Sachs economist Arjun Murti dropped a bombshell by writing,
“The possibility of $150-$200 per barrel seems increasingly likely overÂ Â the next six-24 months”
To add to all this bad news on the Crude oil front,Â rupee has breached the 41 mark. The price action is very swift and a bit unnerving.
Â If these trends persist, are the Indian businesses operating on wafer thin margins (textiles, airlines, farming) sustainable ?
It appears that these low profit margin businesses are the biggest employers of Indian Masses ?
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Point taken than oil prices are sky rocketing and making new records everyday which is very bad for the economy and govt deficit. But to your question of can businesses be sustainable, i would say YES with a decrease in margins. We all know that fuel in india is subsidized and with election in one year’s time i dont think UPA guys will have the guts to increase oil prices. I dont have the statistics of what % fuel (petrol / diesel) occupies in total operational cost of a company. I think it’ll be less than 5%! If oil price rise leads to rise in electricity costs then there might be few heads rolling as electricity is a major cost centre for some commodity cos like cement, steel, aluminium etc. But here again electricity cost is controlled by govt.