India Cuts Fuel Subsidies To Save Budget
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Diesel prices in India rose for the first time in nearly 15 months on Thursday, after the government decided to cut its subsidies for fuel, in a politically risky move that could save at least $3.7 billion for the nation’s state-run refiners.
Diesel prices in India rose for the first time in nearly 15 months on Thursday, after the government decided to cut its subsidies for fuel, in a politically risky move that could save at least $3.7 billion for the nation’s state-run refiners.
Starting from today, the price of diesel in the city of New Delhi has been raised by 14 percent to 41.32 rupees ($0.74) per litre, reported Bloomberg, though the cost of gasoline and kerosene remain unchanged; and the number of subsidized cooking gas bottles for each buyer was now limited to six a year.
The Indian government said that it was forced to respond to “the disturbing situation” of high global oil prices, which would have resulted in a projected $34 billion in fuel subsidies having to be paid out annually.
[quote]”Nobody wants to put pressure on people but the subsidy bill had risen so high that this became inevitable,” said Pawan Kumar Bansal, minister for parliamentary affairs, in an interview with Reuters. “This is an essential step to revive the economy and the investors’ confidence.”[/quote]Related: India “More Than Likely” To Lose Investment Grade Status: Fitch
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Prime Minister Manmohan Singh’s chief economic advisor, C. Rangarajan, added that the government hopes that the move can avert a sovereign credit downgrade, as “the government has shown it can take hard decisions, very difficult decisions.”
Still, the move was, unsurprisingly, met with criticism from opposition politicians.
The Trinamool Congress, a key ally of Singh’s multi-party administration, was the first to denounce the increase, according to AFP.
“We are unhappy. We will not accept it and demand its rollback,” said Trinamool’s party president Mamata Banerjee, who is also chief minister of West Bengal state.
“This is a cruel joke on the common man in the country,” added Mukhtar Abbas Naqvi, vice president of India’s main opposition Bharatiya Janata Party (BJP).
[quote]”We will not allow this hike… We will not allow this government to loot the common man like this,” the opposition leader warned.[/quote]The Financial Times however noted that Singh’s government had already announced back in 2010 that it was going to end state control over petrol prices and gradually deregulate diesel prices.
According to FT, government officials have said in the past that controlling fuel subsidies would be essential to bring order to public finances and would also be easier than reducing subsidies for food.
“If we can do enough on fuel, we buy ourselves some space,” told one senior official to FT this week.
