New Delhi: The government continues to send out conflicting signals on an oil price hike, with Prime Minister Manmohan Singh on Monday hinting that a decision was imminent even as an unnamed official in the petroleum ministry maintained that there was no political consensus on a course of action.
Addressing the annual general meeting of industry lobby Assocham, or the Associated Chambers of Commerce and Industry, the Prime Minister said the government could not afford to allow the (oil) subsidy bill to rise any further. Emphasizing that the government had so far insulated poorer sections of the society from the spiralling price of oil, Singh said that “this situation cannot continue forever.”
However, a top official in the petroleum ministry, who did not wish to be identified, told Reuters that the government had not made up its mind yet about the extent to which fuel prices should be raised. “Consensus is still eluding them. That’s why they are buying time.”
The oil ministry had proposed a 15-22% hike in prices, but analysts say the government may scale it down to 5-10% after Singh’s Congress party lost the recent election in the key state of Karnataka and to placate its ally, the Left Front, that is vehemently opposing any increase at all.
The government fixes the price of petrol, diesel, cooking gas and kerosene to make these affordable and to control inflation, but state-run firms that sell these at prices lower than their cost of production are now suffering a daily revenue loss of Rs650 crore ($153.5 million) as crude costs have soared.
Sustaining growth: Prime Minister Manmohan Singh being welcomed by Assocham president Venugopal N. Dhoot along with Assocham senior vice-president Sajjan Jindal and actor Simi Garewal at the 87th annual session of Assocham in New Delhi on Monday. (Subhav Shukla / PTI)
The government issues bonds to state-run Indian Oil Corp., Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd to partly compensate them for selling cheap fuel.
But with imports accounting for 70% of India’s oil consumption, the subsidy bill is rising because of costly crude.
Meanwhile, Singh also appealed to the industry for support in controlling prices. “I do not wish to see a return to an era of blind controls,” he said, adding that the government would still have to protect the poor from inflation.
Asserting that the Indian economy would continue to grow at 8-9%, Singh said that India would emerge as one of the growth engines for the world economy.
Singh expressed concern on the growing threat of protectionism from the developed economies apart from rising oil and commodity prices. “The unrelenting rise in crude oil prices threatens to disrupt the development process in a large number of oil-importing developing countries. It can have adverse impacts on the global war against poverty,” he added. He also said that the world needed a “new global compact between oil producers and the developing world”.
“At a time when we in the developing world are standing our ground in dealing with the challenges and opportunities of globalization, it is regrettable that the forces of protectionism are gaining ground in many developed countries,” he added.
Emphasizing that India had a stake in the successful outcome of the Doha Round of trade negotiations, Singh said he hoped that the developed nations would not forget that the negotiations were key to development. “It takes two hands to clap. I, therefore, urge the developed economies to play the role they are expected to in sustaining global growth processes, generating new employment opportunities, opening markets and reducing poverty.”
Reuters contributed to this story.