India allows retailers to raise subsidized diesel prices



Reuters

Published — Friday 18 January 2013

Last update 18 January 2013 1:13 am

| نسخة PDF Print News | A A

NEW DELHI: India's government gave fuel retailers some leeway yesterday to raise prices of heavily subsidized diesel, distancing itself from an unpopular policy ahead of elections while trying to revive an economy growing at its slowest pace in a decade.
Fuel subsidies are a drain on India's finances and the government is struggling to bring the deficit within a target of 5.3 percent of gross domestic product for the financial year ending March. India is the world's fourth biggest oil importer.
The government emphasized that any price rises would be small, raising questions over how much freedom the state-run oil firms will really have. Petrol largely remained under government control after a similar policy was introduced in 2010.
Oil Minister Veerappa Moily said the new system gave oil companies some liberty to set prices, but cautioned that diesel subsidies could not be suddenly ended.
"We cannot abruptly put an end to the subsidy or the under-recovery. Looking into all the economic aspects, we have taken the decision to give oil companies the liberty to make small corrections," he said.
Share prices rose sharply in India's main oil marketing companies, which suffer losses selling fuel below cost. The rupee hit a one-month high, while yields on Indian bonds dropped in a sign the market expects the new policy will result in lower subsidies in the medium-term.
The government also loosened a cap introduced in September on the number of subsidized cooking gas cylinders permitted to each household after widespread criticism the quota was unfair on the poor.
The cap will now be nine cylinders per year, up from six. That is expected to add Rs. 93 billion ($ 1.70 billion) to the annual subsidy bill, an oil ministry source said.
"This is a brilliant balancing act between politics and economics. This is one step backward and one step forward," said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy.
"While the decision on the LPG cylinder will pacify their political constituency, the decision on diesel sends out a message to the (central bank) that the government is serious about tackling subsidies and controlling the fiscal deficit."
The Reserve Bank of India (RBI) has long called on the government to reduce its fiscal deficit, which drives government borrowing and keeps upward pressure on interest rates. The central bank meets on Jan. 29 to set monetary policy and has signaled that it is likely to cut interest rates.
Ratings agencies had threatened to strip India of its investment-grade credit rating if the government did not take steps to curb the widening fiscal deficit. Finance Minister P. Chidambaram has vowed that the deficit will not exceed 5.3 percent of GDP this financial year.
Prime Minister Manmohan Singh's government, which must hold general elections by early next year, is trying to revive Asia's third largest economy, which is set to grow at 5.7-5.9 percent this fiscal year, its weakest rate since 2002/03.
Singh was the architect of a wave of economic reforms in the 1990s credited with ushering in two decades of fast growth. In a new push since September to liberalize India's economy, he opened sectors, including retail and aviation, to more overseas investment and cut subsidies on fuel and rail fares.
India imports 80 percent of the crude oil it refines into diesel, about 3.7 million barrels per day, and benchmark Brent crude prices were at their highest annual average on record last year at around $ 111 a barrel, significantly raising its energy bill.
Diesel accounts for about 40 percent of India's fuel consumption, and the state-owned fuel retailers lose Rs. 9.6 (18 US cents) for every liter of diesel sold.
Chidambaram said he did not know when, or by how much, diesel prices will be increased but said consumers should not fear big jumps. "I emphasize the word 'small'. Small corrections from time to time. That I believe the petroleum ministry has allowed the oil companies," he told reporters.
Diesel demand has been very resistant to price hikes. A Rs. 5 per liter price hike in September was followed by month-on-month rises in diesel sales.
The government liberalized petrol prices in June 2010, but has often prevented costs from being raised to reflect rising oil prices on global markets.
Fuel subsidies comprised more than 5 percent of the government's budget spending in previous 2011/12 budget. Asked if raising diesel prices would affect this year's subsidy bill, Chidambaram said the effect was so far unclear.
"I am proceeding on the basis that the subsidy bill remains the same. When they will make the small corrections, how much, I cannot say," he told reporters.

What's happening around Saudi Arabia

Huge projects change the faces of cities and great ambitions help create such projects. Madinah had its date with a quantum leap to usher in a new era of urban development. Such huge projects help achieve formidable civilization advancements and sign...
RIYADH: The Japanese ambassador to the Kingdom, Noriheiro Okoda, has held a meeting with Hashem Abdullah Yamani, president of the King Abdullah City for Atomic and Renewable Energy (K.A.CARE), and discussed bilateral cooperation in the fields of atom...
AL-BAHA: Forty three percent of Al-Baha cannot be developed easily because of the region’s mountainous terrain.This is the view of Khaled Al-Sayegh, undersecretary for construction at the municipality, who was speaking at an event held at the College...
JEDDAH: An official at the Council of Saudi Chambers said the council’s members are discussing a regulation to submit to the Ministry of Labor and other government agencies to deny a number of privileges to companies that force its labor to work unde...
ABHA: With many families wanting new furniture during Ramadan, furniture and interior decorating shops are raising prices to more than double what they were before the month.Homeowner Zaina Mohammed says she used to change her home furniture every Ra...
RIYADH: Saudi Commission for Tourism and National Heritage (SCTNH) President Prince Sultan bin Salman described the first visit by Custodian of the Two Holy Mosques King Salman to Madinah as “historic.”In his comments following the visit which saw th...
MADINAH: Economists expected the volume of investments in Madinah’s economies during the coming few years to reach SR500 billion.The forecasted growth in the population, to reach 2.6 million people after 25 years, and the number of visitors to 12.2 m...
JEDDAH: It seems that many Saudi families are gradually coming to terms with the new reality of living in apartments, as building villas is not possible due to shortage of appropriate land.With the increasing display of housing units by the Ministry...
RIYADH: Migrant rights advocacy group Migrante-Middle East (M-ME) has lambasted their country’s leadership over the claim that the number of overseas Filipino workers are declining due to sustained economic growth in the Philippines.The group has cal...
RIYADH: A charitable foundation called “Smile” will be launched on Sunday night at the Al-Hokair Land in the Saudi capital to make people happy. “The foundation will be launched to make Saudi Arabia a center of smiles,” well-known television host and...
MAKKAH: The Kingdom has seen a sharp rise in the number of Umrah pilgrims to around 6 million from 1.5 million in the last 16 years. Moreover, the number of pilgrims overstaying their visas has come down to about 1 percent. The Ministry of Haj has be...
RIYADH: The King Khalid Foundation (KKF) said here recently that it has financed small enterprises (SMEs) run by 130 widows in some of the Kingdom’s provinces.KKF hosted an iftar party last week for local media at its headquarters in Riyadh at which...
JEDDAH: Prince Abdullah bin Abdul Aziz bin Musaed, governor of the Northern Borders province, has died.He will be buried after Taraweeh prayers in Jeddah on Saturday, the Royal Court said in a statement carried by the Saudi Press Agency. No other det...
RIYADH: The Ministry of Education has suspended all parallel education programs, except in medical and engineering specialties, as well as bridging programs for health diploma certificates.Education Minister Azzam Al-Dhakil gave directions to the rec...
RIYADH: The Cooperative Health Insurance Council said it had suspended operations of six medical insurance companies for violating health insurance regulations by issuing insurance policies without completing the required documentation and violating...

Stay Connected

Facebook