Last week, India allowed market prices for petrol and said
diesel may also be freed in the future, to bolster the government's finances
and open up a key sector long dominated by state-run institutions.
Singh's comments, carried by a government statement, showed
his commitment to a policy that would hurt farmers, raise transport costs and
stoke double digit inflation.
"With regard to petroleum prices, the fact (is) that
petrol prices have been set free; the same is going to be done to the diesel
prices...," the statement quoted Singh as telling reporters while
returning from the G20 nations summit that was held in Toronto.
Market pricing led to a 7.3 percent rise in the price of
petrol, while state-set diesel rates, which were increased by 5 percent last
week, may rise by a similar amount under market forces.
Friday's price increases would shrink the losses of
state-run oil firms by about $13 billion in fiscal 2010-11 to $11.4 billion,
according to Oil Ministry projections.
Reforms in diesel prices would also make the retail market
more lucrative for private firms such as Reliance Industries, Essar Oil and
Royal Dutch Shell as diesel accounts for a third of India's oil demand, while
petrol's share in barely 10 percent.
Private firms currently operate less than 2,000 of India's
40,000 petrol pumps but end of subsidized sales by state firms is encouraging
them to expand their retail operations.
Analysts say market prices for diesel in Asia's
third-largest oil consumer may stoke inflation but Singh said the government
was concerned that fuel subsidies would hurt the fiscal situation.
Any further rise on inflation would pressure the central
bank to raise rates before a scheduled review on July 27.
"What we need is to do the right things (for) our
country. The subsidies for the petroleum products have reached a level which is
not connected to sound financial management of our economy," Singh said.
"So it is taking that into account that this decision
has been taken to put some burden on the common people, but I think it is
manageable."
Finance Minister Pranab Mukherjee said last week's move to
end price controls on petrol and raise prices of diesel, cooking gas and
kerosene, was a difficult but necessary decision.
"So, we have taken that risk, there is no doubt. After
all, enhancement of oil prices is always an unpleasant decision," the
Business Standard daily quoted Mukherjee as saying.
"But, this unpleasant decision we had to take, there
were hardly any options, we had to do it," he added.
Opposition parties, and members of Singh's coalition, have slammed
last week's hike as an attack on people's pockets. The main opposition Hindu
nationalist Bharatiya Janata Party (BJP) is coordinating a general strike with
regional parties.
Analysts said Friday's decision and Singh's latest statement
showed the government was pushing reforms and fiscal discipline.
"Clearly the prime minister has made up his mind to
push for fiscal prudence because he is convinced that this is needed to keep
the economy in shape," D.H. Pai Panandikar, head of private think tank RPG
Foundation.
"He is also convinced that if it comes to defending his
policies in Parliament or going for parliamentary voting he will be able to win
it." Panandikar said political allies of the ruling Congress party may
criticize the decision but they would continue to support Singh's government.
Shares of state-refiners Indian Oil Corp, Hindustan
Petroleum Corp Ltd. and Bharat Petroleum Corp. Ltd. rose after the prime
minister's statement but retreated later in the day.
