New Delhi: The government will decide on Friday whether to raise state-subsidised fuel prices, with high global rates and pressure to trim the budget deficit expected to outweigh concerns about the political impact of the measure.
A panel of ministers will review freeing up petrol prices and cutting subsidies on diesel, kerosene and cooking gas which could help reduce the fiscal deficit from the projected 5.5% of 2010-11 GDP and free up revenues for other programmes.
Oil industry officials say government allies have almost agreed to raise petrol prices by more than Rs3 a litre, but hikes in diesel, kerosene and cooking gas may he halted due to opposition from parliamentary allies of the government.
In early June, the Congress-led government held off the decision after two powerful ministers from coalition parties stayed away from a ministerial panel meeting, signalling opposition to the move on fears of voter backlash.
Finance secretary Ashok Chawla told Reuters this month he expects the fiscal deficit to shrink to 4.5% of GDP in fiscal year 2011 if fuel prices are deregulated and on the back of other revenues including the 3G spectrum auction.
Fuel accounts for a quarter of its estimated subsidy bill of Rs1.2 trillion ($25.5 billion). Projected losses for oil firms are estimated at $24.4 billion this year, based on an average crude price of $85 a barrel.
The meeting of the ministers is scheduled to start at 1pm.
The last delay underscored the difficulties for the coalition government in pushing through financial reforms that entail painful adjustments to freer markets. It backed out a few months ago on freeing up farm prices after street protests.
Raising fuel prices would stoke inflationary pressures, already at levels uncomfortable enough for voters to slam Congress in recent municipal elections in the eastern state of West Bengal.
India’s food inflation accelerated in mid-June and further inflationary pressures could lead the central bank to raise interest rates ahead of a 27 July policy review.
The panel of ministers include two members from largest coalition allies Trinamool Congress and Dravida Munnetra Kazhagam (DMK), who face crucial state elections next year and would likely try to soften any unpopular hike. Both had opposed an increase in motor fuel prices in February.
Any move to remove price controls will help Reliance Industries, which operates the world’s biggest refining complex but exports most products as the local market is dominated by state firms that sell cheap fuel, helped by government subsidies.
The oil ministry wants to free up petrol prices, gradually hike diesel rates to market levels and has recommended a small increase in the price of kerosene, used for lighting by the poor, and in cooking gas.