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Fuel price hike, duty cut to help contain inflation: Montek

Fuel price hike, duty cut to help contain inflation: Montek
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First Published: Wed, Jun 29 2011. 04 50 PM IST
Updated: Wed, Jun 29 2011. 04 50 PM IST
New Delhi: Defending the government’s decision to raise prices of petroleum products, the Plan Panel on Wednesday said it would suck money from the system and ease inflationary pressure in the long run.
“As we are raising the prices, that will pull money away from the system. That would have a softening impact (on inflation),” Planning Commission deputy chairman Montek Singh Ahluwalia told reporters.
He further said, “I don’t agree with the view that if we had done nothing, inflation would have been lower. If we had done nothing, then the hidden inflation would have been eating away.”
The decision to cut duty, he said, “was a conscious decision to lose some revenue to moderate the impact (of the fuel price hike on the common man)”.
The government had last week hiked diesel, kerosene and cooking gas prices by Rs3 per litre, Rs2 per litre and Rs50 per cylinder, respectively.
In addition, the government also reduced customs duty on petroleum products to 2.5% from 7.5%, which would result in an annual revenue loss of Rs49,000 crore.
Excise duty on diesel was also reduced from Rs4.6 per litre to Rs2 per litre.
During the remaining eight months of the fiscal, the Centre and states will lose around Rs24,000 crore and Rs11,000 crore, respectively, due to the duty cut on petroleum products.
Headline inflation, as measured in terms of the wholesale price index (WPI), stood at 9.06% in May and experts said it will breach the double-digit mark by July on account of the fuel price rise.
Regarding the impact of the fuel price hike on the fiscal deficit, Ahluwalia said: “They (government) have quantified some revenue losses. What happens to the fiscal deficit depends on many other things. I am sure the finance ministry is looking at that. And I think they are shortly going to submit to Parliament some sort of medium assessment on the fiscal position.”
He further said, “My personal view is that if we are looking ahead and if India faces a situation of rising energy prices, we should adjust ourselves to passing on the fuel prices, because if we have fail to do so, we will be weakening the economy.”
Asked his views about when the inflation numbers are likely to moderate, he refused to make any guess.
“The finance ministry has said that if the monsoon is normal and agricultural production is good, then price pressure will decrease. But I do not want to give a forecast,” Ahluwalia said.
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First Published: Wed, Jun 29 2011. 04 50 PM IST