Jaipal Reddy, Oil Minister, Government of India, proclaimed that the hike in fuel prices is imminent in the country and should be expected within a week.
According to Reddy, the government has no choice left but to increase the price of subsidised fuels like diesel in the country in order to recoup for the widening deficit. Reddy further revealed that the final decision on the hike could be expected any time soon.
Reportedly, the Finance and Oil ministries have been campaigning intensively for increasing the fuel prices. The ministries have worked hard to influence the government to hike the fuel prices and have even cautioned the cabinet about the repercussions of not taking a proper action on time, which could ultimately lead to a fiscal disaster.
After a meeting with P. Chidambaram, Finance Minister of India, Reddy quoted, “However painful and difficult an increase in the prices of oil products may be, an increase is unavoidable. To what extent can the consumers take it is another matter.”
Reportedly, the government's subsidy onus is vital to augment India's fiscal situation. The increase in fuel prices will also allow the state-owned companies, which subsidise fuel prices in the country, to manage some profits this fiscal. According to industry analysts, the state-owned oil companies have been selling diesel, kerosene and domestic LPG at losses of Rs. 17 per litre, Rs. 32 per litre and Rs. 347 per cylinder, respectively.
Interestingly, the government has deferred its plans of increasing fuel prices in order to escape from the strong political resentment from its allied partners and opposition, when state elections due this year. The government has also been fighting allegations over the illegal allotment of coal blocks in the country.
Global rating firms like Fitch and Standard & Poor's have already cautioned the government that the country is on a verge of an economic catastrophe and may become the first country among the BRICS group to lose its investment grade. The other countries in the group are Brazil, Russia, China and South Africa.
The reason cited for the government's predicament is the ever increasing deficit in revenues because of the massive difference between the actual and subsidised costs of fuels.
Arvind Mayaram, Secretary, Economic Affairs pointed out that the government has planned to take aversive manoeuvres to curb the deficit, which according to economists will stretch to 6 per cent of the total Gross Domestic Product (GDP) this financial year. Speaking his mind, Mayaram said, “Pain will be felt by everyone.”
