Defending the steepest ever hike in diesel price and limiting supply of subsidised LPG, Prime Minister Manmohan Singh today said the nation would have faced a record Rs 200,000 crore of fuel subsidy if the government had not acted.
"We import almost 80% of our oil, and oil prices in the world market have increased sharply in the past four years. We did not pass on most of this price rise to you, so that we could protect you from hardship to the maximum extent possible," Singh in his address to the nation.
Non-revision of diesel, kerosene and cooking gas (LPG) prices since June last year had resulted in almost Rs 140,000 crore of oil subsidy last year, he said.
"If we had not acted, it would have been over Rs 200,000 crores this year. Where would the money for this have come from? Money does not grow on trees," Singh said.
The government had last week hiked diesel price by Rs 5 per litre, which at consumer end translated into an increase of Rs 5.63 a litre after accounting for local sales tax (VAT).
It also limited supply of subsidised LPG to 6 cylinders per household in a year. Any requirement above that would have to be procured at market rate which is more than double of Rs 399 price--the price of subsidised 14.2 kg cylinder.
Singh said the price of diesel was raised by just Rs 5 per litre instead of the Rs 17 that was needed to cut all losses on diesel.
"Much of diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Should government run large fiscal deficits to subsidise them?," he asked.
The government, he said, reduced taxes on petrol by Rs 5 per litre to prevent a rise in its prices. "We did this so that the crores of middle class people who drive scooters and motorcycles are not hit further."
On capping supply of subsidised LPG, he said almost half of people actually use only 6 cylinders or less. "We have ensured they are not affected. Others will still get 6 subsidised cylinders, but they must pay a higher price for more."