Indian Prime Minister Defends Hike in Petroleum Prices, Says Subsidies Have Reached Unmanageable Levels

Strategic Insights -

Indian Prime Minister Manmohan Singh on Tuesday defended the government's decision to hike prices of petroleum products, citing the need for "much-needed reforms" and subsidies on these products, which have reached unmanageable levels. Singh emphasized that the government's goal is to reduce the fiscal deficit to 5.5% of GDP for this fiscal year and that the decision was taken after careful consideration to minimize the impact on the poorer sections of society. He also indicated that there is no going back on the plan to make pricing of diesel also market-determined, as was done in the case of petrol.

Key Takeaways:

  • The Indian government has hiked prices of petroleum products citing the need for "much-needed reforms" and subsidies on these products, which have reached unmanageable levels.
  • The Prime Minister emphasized that the government's goal is to reduce the fiscal deficit to 5.5% of GDP for this fiscal year, and that the decision was taken after careful consideration to minimize the impact on the poorer sections of society.
  • The Prime Minister indicated that there is no going back on the plan to make pricing of diesel also market-determined, as was done in the case of petrol.
  • The government has taken due care to ensure that the poorer sections are affected to the least possible extent, and the attempt to keep kerosene and LPG prices under regulation was made.
  • The Prime Minister stated that the decision was not taken under pressure from any quarter, and that the government needs to do the right things for the country.
  • The subsidies on petroleum products have reached a level that is not connected to sound financial management of the economy.

Statistics:

  • The average price of the Indian crude basket is around $75 a barrel this fiscal year.
  • The oil price stood at $78 on Tuesday, while earlier this fiscal, it rose to $80-81, which would have meant a subsidy bill of over Rs 1 lakh crore.
  • The government's fiscal deficit goal for this fiscal year is 5.5% of GDP.
  • The subsidy implicit in the prices of petroleum products is threatening to hit government finances badly.

Sources:

  • The Indian Express Limited, June 29, 2010.
  • Contify.com.