Bring down fiscal deficit
If the oil marketing companies would not have been permitted to raise prices, they would have demanded compensation from the government, which in turn would aggravate the fiscal deficit, which has already reached 5.9% of GDP for 2011-2012 as against the targeted 4.6%. In fact, oil marketing companies have been demanding compensation ever since the UP elections concluded, however, the government did not give its consent.
Inflation to spike
Inflation, which thus far has been surpressed will come to the fore again and estimates suggest at least a 50 bps points in WPI can now be expected. Consumers are likely to feel the pinch.
RBI unlikely to reduce repo rates
With inflation likely to move up, the RBI is unlikely to reduce repo rates. In fact, it would not be a surprise to see a repo rate hike.
Dampen economic growth rates
With interest rates at elevated levels economic growth can stagnate.
Preference for diesel cars, unless diesel is deregulated
A paradigm shift is likely to occur in favour of diesel cars, unless the EGOM decides to hike or deregulate diesel in its meeting on Friday. The government might even consider increasing the excise on diesel cars in its next budget.