Montek favours hike in oil prices, economy to grow by 8.5%

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New Delhi, Dec 4: Planning Commission Deputy Chairman Montek Singh Ahluwalia today favoured passing on the hike in global crude prices to the Indian consumer, saying sustained high petroleum prices impose a hidden cost on the economy.

"We in the Planning Commission have looked into the problem and have arrived at the conclusion that high prices have to be passed on," Dr Ahluwalia told reporters on the sidelines of a session in the India Economic Summit here. The World Economic Forum and CII have organised the event jointly.

Dr Ahluwalia said soaring world oil prices generated hidden deficits, which have their own implications on the economy. He said the high crude prices will impact negatively on the current account.

"If oil prices continue to rise on a sustained basis then they have to be passed on while protecting the poor and vulnerable sections of the society," he said.

As to whether these prices will adversely affect the growth rate, Dr Ahluwalia said that short-term events were not the right way to judge the issue.

The economy was resilient enough to bear such phenomenon, particularly if there is a pass through.

Replying to a question as to whether they are impacting on inflationary expectations, Dr Ahluwalia said inflation should not be viewed through a short-term lens, but the situation in the medium and the long-term.

The Eleventh Plan document speaks about how oil-marketing companies (OMCs) are being bled white by absorbing the spiraling crude oil prices.

Crude is now ruling in the international markets at about 100 dollars a barrel with oil companies estimating losses to be close to Rs 70,000 crore this fiscal year if oil prices remain above 90 dollars a barrel.

Asked whether the recent slowdown in the manufacturing sector would result in a lower GDP growth this fiscal, Dr Ahluwalia said the economy grew by 8.9 per cent in the second quarter as compared to 9.3 per cent in the first quarter of the year. This was still way above the average 8.5 per cent projection for this fiscal by the government.

Asked whether high global food prices were contributing to inflation in the domestic economy, he said this has a positive side too, as the income of the farmers go up. "Farmers benefit from high food prices. In a situation where farming has become unattractive, high food prices will help improve the situation." Dr Ahluwalia said NSSO data show that 45 per cent of the farmers in India want to quit the agriculture sector. High food prices would reduce the farmer's debt.

The well-known economist said, nevertheless, it was important to protect the poor consumers by taking recourse to the Public Distribution System (PDS).


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