If oil prices keep rising, Govt will have to act: Montek

OIL IS WELL: The Deputy Chairperson of Planning Commission defends fuel price rise.

        

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Montek Singh Ahluwalia: That is a judgement.

Karan Thapar: Absolutely. Why did you not come to this judgement?

Montek Singh Ahluwalia: When you balance a whole lot of alternatives, you come to a conclusion and someone will always say that you should not have done that or this.

Karan Thapar: Were you scared of losing votes?

Montek Singh Ahluwalia: It is not a question of losing votes. It is a question of providing something that will be perceived by the public as fair. And I think fuel prices are sensitive. Incidentally, petrol got the biggest hit. There was a Rs 5 increase in petrol, compared to other things.

Karan Thapar: The whole thing hinges upon the fairness with which you distribute the burden. The second aspect of your distribution of burden is that so that you can claim your fiscal deficit is not affected almost 50 per cent of the burden has been actually handed over to future generations?

Montek Singh Ahluwalia:It is true that issuing oil bonds is taking on the burden in the Budget to spread it out in the future. It's a judgmental call whether you should do that now or pass on the burden immediately. Now when you get a big increase in oil prices—any big shock—it is quite normal to insulate the immediate consumer for a little while. What happens if this price (rise) continues? Can we keep issuing oil bonds? We have categorically said no. The Prime Minister has said it's not a permanent solution.

Karan Thapar: Then there is corollary from what you are saying. If the price of oil keeps increasing, if it hits $200 a barrel at the end of this year, then presumably you are not just going to have increase the price but make consumers pay for it.

Montek Singh Ahluwalia: I have no hesitation in saying there is no magic bullet with the government. If import prices increase we cannot insulate the domestic consumer indefinitely. There is a case for insulating the poor, a much weaker case for insulating the general consumer—there is some case because you don't want to shock them too much—and very little case for insulating the rich. But the fact is that if oil prices keep on rising the government will have to do something.

Karan Thapar: That suggests the Government would have to first hit those who can afford to pay whilst protecting those who can't and therefore petrol and LPG consumers can expect that if prices of petroleum increases internationally the price of the product they buy in India will go up. At least appreciably.

Montek Singh Ahluwalia: I can't announce what the Government would do but in my view—and the Planning Commission—has been consistent on this we must bring the country round to the recognition that domestic consumers must pay, except those who need subsidy. Those subsidies should be limited and targeted.

Karan Thapar: Is there consensus in the Cabinet for this thinking?

Montek Singh Ahluwalia: Raising prices, raising taxes these are all difficult issues. Nobody decides these things in anticipation of hypothetical circumstances.

Karan Thapar: Is that a yes or no?

Montek Singh Ahluwalia: The Cabinet's decision is to share the burden. That is a recognition that consumers will have to bear some burden.

Karan Thapar: And the Planning Commission's advice is that burden must be shared by making those who can afford to more??

Montek Singh Ahluwalia: Absolutely! We have been completely consistent on that.