Fiscal consolidation in 2011-12 may prove a tad hard for the Union government. Petroleum minister Jaipal Reddy said on Tuesday that under-recoveries of oil companies may touch the Rs1 trillion mark. He said there were no plans, at the moment, to raise fuel prices. At the same time, fertilizer secretary Sutanu Behuria said the subsidy on fertilizers will be increased in view of their rising prices globally.
Both decisions have, it seems, been made to keep inflationary pressures under check. Increasing fuel prices has a direct effect on inflation and fertilizer prices too lead to higher food prices.
These measures, if they can be called that, will only be of a palliative nature. By not raising prices of these items the government is only postponing pain to another day. This underpricing will only swell the fiscal deficit and that will have its own impact in adding to inflationary pressures.