Mumbai: Prime Minister Manmohan Singh on Monday ruled out rolling back a price hike in motor fuel prices despite pressure from his main allies, saying populist policies would hurt the economy in the long-term.
Petrol prices rose about 6% and diesel prices by 7.75% after the government increased factory-gate taxes and import duties on the fuels as part of last week’s 2010-11 federal budget, which stressed fiscal prudence to cut a wide deficit.
But with food prices rising at an annual rate of nearly 20%, government allies Trinamool Congress and the DMK party, which give the ruling Congress party a parliamentary majority, have said higher fuel prices will further hurt the poor.
“Any increase in prices does hurt some people, but we have to take a long-term view,” Singh told reporters on his way back to India from a visit to Saudi Arabia, according to state-owned broadcaster Doordarshan News.
The government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers, particularly the poor, from sharp fluctuations in energy prices.
But it is now considering abandoning control of fuel prices, which require huge state subsidies, in order to cut the fiscal deficit to an estimated 5.5% of GDP in 2010-11 from 6.9%.
The Indian economy, which is forecast to grow at 7.2% in the year to March 2011, has the capacity to absorb the increase in fuel prices without putting much additional pressure on inflation, Singh said on Monday.
“The increase in fuel prices, the direct effect on Wholesale Price Index will be no more than 0.40%,” he said.
High food prices helped push wholesale price inflation to 8.56% in January.
“My hope now is that with the Rabi (winter sown) crop coming into the market, prices which have caused a great degree of concern in areas like wheat, sugar, oilseeds and pulses, will see some moderation,” Singh was quoted as saying.
Following populist policies indefinitely, Singh said, would harm the economy in the long run, eroding the investment climate and the capacity to create new jobs as well as the government’s ability to invest in welfare schemes, Singh said.
“So we have to balance these factors,” Singh said.