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

ABHA: Gov. Faisal bin Khalid bin Abdulaziz, Asir region, ordered the formation of a working team in Bisha to address the status of the battered woman who recently shared her suffering on social networking sites.Mohammed bin Sabrah will head the team,...
MADINAH: Madinah Gov. Prince Faisal bin Salman launched a series of charity and developmental projects during his recent visit to Khaibar Province at costs exceeding SR100 million.They included municipal projects at Khaibar, Al-Salsah and Al-Ashash M...
MADINAH: Pilgrims spend the most beautiful moments in the Prophet’s Mosque, where they pray in Riyazul Jannah (garden from the gardens of paradise) and get to greet the Prophet, peace be upon him, said the Omani pilgrim, Ahmed Nasser. “Such deeds giv...
MADINAH: A member of the Senior Scholars Council, Dr. Abdullah Al-Manieh, has called for the establishment of women’s departments at the Islamic University in Madinah in line with other universities in the Kingdom.“The Muslim woman has had her own st...
JEDDAH: The euphoria over the sudden resumption of call facility on WhatsApp in the Kingdom on Saturday was short-lived as the service was not widely available the following day. A large number of users of the popular messaging service, barring a few...
JEDDAH: Work on developing and modernizing the Kingdom’s 27 airports is ongoing and is expected to be completed within the next five years, according to Sulaiman Al-Hamdan, president of the General Authority for Civil Aviation (GACA).“Our goal is tha...
RIYADH: Saudi Arabia and South Korea are set to widen cooperation in the health care sector following a joint road show which underlined potential areas of cooperation and showcased world-class health facilities of that country. The event, titled “Ko...
RIYADH: The Saudi Green Building Forum (SBGF) believe that about fifty percent of the ongoing eco-friendly green building projects across the Kingdom are facing delays for not fulfilling criteria.Faisal Alfadl, secretary-general of the forum, on Satu...
AL-UQAIR: The low-quality of education in the Kingdom arises from many factors. Included among these are the complexity of the system itself, unclear educational vision, non-professional education development programs, and instability due to changing...
JEDDAH: Security authorities in Jeddah called a citizen and his wife for interrogating with them on the charges of beating their Eritrean housemaid.Makkah Police media spokesman, Col. Dr. Atti bin Attiah Al-Quraishi, said: “The Safety Center of Jedda...
AL-UQAIR: The Saudi Commission for Tourism and National Heritage (SCTNH) has deposited SR600 million with local banks for the Al-Uqair Development Company in Al-Ahsa, SCTNH President Prince Sultan bin Salman has said.“Saudi citizens have some equitie...
JEDDAH: A number of preachers have been arrested for using sermons to promote political ideologies, said Fahad Sulaiman Al-Khalifa of the Ministry of Islamic Affairs.He said the issue was not widespread, and the ministry reiterated that the sermon sh...
JEDDAH: A Saudi military analyst and retired brigadier, Ibrahim Al-Marie, has called for the compulsory drafting of young Saudis into the military.This is, he said, not only because the Kingdom is facing regional threats, but because of its benefits...
RIYADH: Advertisement campaigns for fake TOFEL and ILET certificates are being monitored on social media websites in an effort to halt this illegal practice. The certificates originate from Jordan and can be obtained by clients for a sum of SR2,000,...
JEDDAH: A group of young men has come up with a novel home cinema project.The project involves providing a cinema hall show for lovers of the entertainment medium by providing projector screens, sound systems and lighting devices with suitable and co...

Stay Connected

Facebook