Montek Ahluwalia presses upon ending diesel subsidy

Friday 16 September 2011, 19:05 PM by

In the wake of the backbreaking slowdown that has blanketed the economy for a long time now, an eminent policy maker has expressed his way of tackling the situation. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission has urged to axe out some part of the energy subsidies. He supported the idea by conveying that this move will ensure proper awareness and exact knowledge regarding the fuel prices in the country. This in turn would aid in pacifying the pressure that is mounted on the country’s fiscal deficit.

Montek Singh Ahluwalia, also the closest aide to Prime Minister Manmohan Singh, asked the Indian government to take “hard decisions” that would lead to the pressure of high prices being passed on to the consumers.

He said that the government led by the Congress party will have to convince itself and believe in the fact that it is possible to run a fast-growing economy only when energy prices are high. He also asked the government to break with pricing policies that have used frugal power to offer swiftness to the growth, which reached 8.6 per cent in the last fiscal year.

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Ahluwalia was quoted as saying, “The only strategy is to pass on the rising [energy] prices to the consumer, as painful as that might be. No strategy that fails to pass on high energy prices will be consistent with high growth.”

The Deputy Chairman of the Planning Commission provided the government with a word of caution saying, that the humongous differences that are cropping between fuel prices and imbalance that subsidies create, were crippling India’s state-owned oil companies. “The country depends heavily on imported oil. Low prices are killing the energy sector [at a time of high crude prices],” he said.

India's energy and other kinds of subsidies accounts for about 9 percent of gross domestic product (GDP), according to estimates from the Organisation for Economic Co-operation and Development (OECD). In 2008 energy subsidies were amounted to $41bn or 3.4 percent of GDP and the country’s per capita oil subsidies are three times as high as that of China, according to the official data. If economists are to be believed, the subsidies are being considered as a cost India that is unaffordable. The reason being, that it stagnates or even forces the fiscal deficit to hike, with the need to spend more on infrastructure, health and education.

At times, the government has mulled upon the serious issue and has taken steps to tame the price of petrol, which has risen 41 per cent since February last year. But the idea of raising state-controlled diesel prices has not gone down well with New Delhi. It fears that the sudden impact of a rise in the price of the fuel that backs the nation’s heavy vehicles fleet would give rise to jeopardising inflationary trends.

India suffers the highest inflation among any other economy in Asian region. The inflation rate rose to 9.06 per cent in May, instigating India’s central Bank to swell up the interest rates. In April, the index rose by 8.66 per cent.

Thus, it is not important to find out who is right and who is at fault. At the end of the day, what matters is a solution that concludes the problem of those, who are at the receiving end.