The petroleum secretary avers that the huge fiscal deficit has left the Centre with no option but to go in for the unpopular measure. Prime Minister Manmohan Singh made the same point at the National Development Council meeting today.
"Unfortunately, energy is under-priced in our country. Our coal, petroleum products, and natural gas are priced well below international prices. This also means that electricity is effectively under-priced for some consumers. Subsidies should be well designed and kept under fiscal limits," he told the chief ministers of different states.
"Immediate adjustment of prices to close the gap is not feasible, I realise this, but some phased price adjustment is necessary," the PM said.
Though the government wanted to limit the budget deficit during the current fiscal to 5.1 per cent of the gross domestic product (GDP), the figure had to be revised upwards to 5.3 per cent last month since the tax revenue was much lesser than anticipated and the expenditure on subsidies could not be contained. The latter factor proved to be quite significant.
Between Apr and Sep 2012, the state-owned oil companies reportedly incurred losses to the tune of Rs 85,586 crore on sale of subsidised kerosene, LPG and diesel. Bharat Petroleum Corporation, Hindustan Petroleum Corporation and Indian Oil Corporation lost Rs 52,711 crore on just selling diesel at below the market rate.
Though diesel price has remained the same since Sep 14 and kerosene price too has not been hiked for several months now, the government is in a dilemma as opposition parties will surely seize the opportunity if the UPA opts for increasing the diesel price by Rs 10 per litre.