Either oil prices or subsidy have to be raised: Basu

The government may be forced to hike diesel and cooking fuel prices or shell out more on oil subsidy if global crude oil prices continue to rise, Chief Economic Advisor Kaushik Basu said here today.

For a nation that is 75% dependent on imported crude oil to meet its energy needs, a spike in rates may spell bad news as the Government will have to make a tough choice between shelling out more subsidy and passing the rise to consumers, Basu told a conference here.

"In such circumstances (if oil price rise is significant) the government will either have to bear the additional cost or pass it on to the consumer. However, in such a case either decision would be difficult," he said.

Basu said a spurt in crude oil prices would force the government to recalculate the amount of subsidy it will give on petroleum products.

"If crude prices goes up sufficiently high then so does our calculations on subsidies," Basu told the conference organised by Institute of International Finance here.

For 2011-12, the finance ministry has estimated Rs 23,640 crore in oil subsidy, lower than Rs 38,386 crore of current fiscal.

Global crude oil prices are at the highest level since 2008, touching $116 per barrel.

The government had in June last year decided to free petrol pricing from its control and the same on diesel was to be done eventually.

The spike in crude rates has meant that even retail rates of petrol have not moved in tandem with cost while the deregulation of diesel has been kept in abeyance.

India's oil imports grew by 7.8% to $7.85 billion in January, taking the import bill during April-January, 2010-11, to $79.95 billion.

Basu exuded confidence that food prices will moderate and government's subsidy on food would not be affected much in the next fiscal.

Although food inflation declined to 11.49% in second week of February, it still remains a concern for the government.