Prime Minister Manmohan Singh today said his government would free Diesel prices, even as some of his allies and the opposition criticised the government's move last week to move petrol and petro-products from state-set prices to market-based rates.
The prime minister said lifting state control had become necessary to cut the high level of subsidies, but added that his government had taken due care to ensure the poor were not hit, by maintaining control over the prices of cooking gas and kerosene.
“People are wise enough to understand that excessive populism should not be allowed to derail the progress our country is making," Singh said on his way back from Toronto in Canada, where he attended the G20 summit.
On Friday, an empowered group of ministers, headed by Finance Minister Pranab Mukherjee, decided to allow oil marketing companies to raise the price of petrol by Rs 3 a litre and diesel by Rs 2 a litre. It had also decided to make diesel prices market-driven, just as petrol, though no time frame was given by Petroleum Minister Murli Deora. And, for the first time in eight years, the government decided to raise prices of kerosene, by Rs 3 a litre, while cooking gas rates were increased by Rs 35 a cylinder.
The move was necessitated as oil companies were losing Rs 215 crore a day, despite a fall in global crude oil prices. Underrecovery of oil marketing companies for petrol would have been Rs 7,000 crore and for diesel Rs 23,000 crore for the year, had their prices not been decontrolled.
The decision to raise oil prices is being strongly opposed by the main opposition Bharatiya Janata Party and the Left parties, who have called for a nationwide bandh on July 5.
At least two of the government's allies — Dravida Munnettra Kazhagam and Trinamool Congress — have also opposed the move. All these parties have called for a roll back of the decision to raise prices.
The prime minister, who had left for Toronto within hours of the decision, said he had only heard about the protests through the media.
“The subsidies on petroleum products have reached a level which is not connected to sound financial management of our economy. So, this decision has been taken to put some burden on the common people, but it is manageable,” he said.
While the United Progressive Alliance returned to power in 2009 with a more decisive verdict, the government was unable to push through critical reforms in the financial sector. It was only three months ago that it decided to revamp the fertilizer subsidy regime and has now moved on reworking the oil subsidy programme. The third major subsidy – food – is also being dealt with but so far the government has no major achievement to talk about on the issue. Singh refused to comment when asked about the government’s next reform initiative.
High subsidies are a major driver of fiscal deficit, which is budgeted at 5.5 per cent of the gross domestic product (GDP) this year, as against 6.7 per cent projected in 2009-10. The Centre has often been criticised for its focus on boosting tax collections to deal with the fiscal situation and for not dealing with the more complex task of reforming its spending programme.
In response to another question, Singh said India’s fiscal situation was a cause of concern, but added, that the country came out better from the global financial crisis than some of the developed economies.
He also said the government was under no pressure to reduce oil subsidies.