No road map yet for diesel decontrol

NEW DELHI: The government ended the confusion over pricing of diesel saying the fuel has not been decontrolled like petrol, but reiterated its commitment to cutting wasteful subsidies.

“We have not thought about decontrolling LPG (cooking gas), kerosene or diesel right now. We have to look at a lot of things, like (its) effect on consumer, before we do that,” Cabinet secretary KM Chandrasekhar said on Tuesday.
The government said last month that it was deregulating prices of petrol and diesel, but limited the increase in the case of the latter to only Rs 2 a litre.

The impression was that diesel prices would be made market-based gradually but the lack of clarity over how soon that would happen suggested that the government may have developed cold feet after a huge uproar over the fuel price increase.

“I can’t say we have a road map to do this (decontrol) at this point of time,” Mr Chandrasekhar told reporters at a meeting between industry chamber CII and top government bureaucrats from key ministries on ideas to achieve double-digit growth by 2014.

Apart from Mr Chandrasekhar, finance secretary Ashok Chawla, revenue secretary Sunil Mitra, commerce secretary Rahul Khullar, industrial policy secretary RP Singh, agriculture secretary Prabeer Kumar Basu and member secretary in the Planning Commission Sudha Pillai participated in the event.

The Cabinet secretary reiterated the government’s resolve to cut fiscal deficit by reviewing the system of subsidies. “We are looking at subsidies, how the subsidy system can be rejigged to ensure it reaches the poorest of the poor on one hand, and at the same time it incentivises production,” he said.
The Centre spent Rs 1,31,025 crore on food, fuel and fertiliser subsidies in the last fiscal and expects to bring down such payments to Rs 1,16,224 crore in 2010-11 and rein in its fiscal deficit to 5.5% of gross domestic product.

Inflation, Mr Chandrasekhar said, is certain to fall “with a good monsoon and a good crop”. “Experts are saying that inflation will be 5-6% by year-end...I don’t have any reason to disbelieve it.”

Wholesale price inflation has remained at over 10% for five consecutive months, reaching 10.55% in June. Food prices have “more or less stabilised” over the past three or four months, but pulses will be a “critical problem”, the government’s top bureaucrat observed.

The Reserve Bank of India, while deciding on the steps it must take to tackle inflation, will have to judge if inflation is being caused by high money supply or supply constraints, he said. If inflation is due to high levels of liquidity, then it may call for more monetary measures.

The RBI is widely expected to raise the repo and reverse repo rates by 25 basis points in its policy review on July 27, after three similar hikes earlier this year.

Mr Chandrasekhar indicated that the government will continue with the fiscal stimulus measures, including the cut in the excise duty rate.

The round-table of officials of key economic ministries focused on how industry and government can work together to achieve and sustain 10% growth in the coming years, CII director-general Chandrajit Banerjee said.

Jahangir Aziz, India chief economist at JP Morgan, said such meetings with industry groupings help the government understand the ground-level realities in terms of capital expansion plans and funding costs.

“The government gives due importance to its interactions with industry, although it may not always be able to do all that India Inc may want,” he said.