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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Keywords: Indian Economy, Global Fuel Crisis

Is the UPA government still capable of handling the economic challenges facing the country or has it run out of directions. That is the key issue Karan Thapar raised with the Deputy Chairperson of the Planning Commission, Montek Singh Ahluwalia, on Devil's Advocate.

Karan Thapar: Many people believe that with just less than a year for elections, the government has run out of directions. It can no longer tackle the challenges India faces. Are you like a ship lost at sea?

Montek Singh Ahluwalia: Not at all. We have had an external set of circumstances that have imposed some difficulties. But the ship is steering pretty much in the direction it should.

Karan Thapar: Let me begin by taking about the oil price hikes. The international prices of oil have jumped nearly 100 per cent in the last one year. Why did you not act earlier? Why did you wait for a crisis like this to take action?

Montek Singh Ahluwalia: I don’t think this is the case. What you actually mean is we did not adjust the prices earlier.

Karan Thapar: Absolutely.

Montek Singh Ahluwalia: Number of actions were taken earlier. Remember this is a big increase in oil prices and all of this could not have been passed on to the consumer.

Karan Thapar: But you allow the situation to develop. Some oil companies will have a projected loss of Rs 250 thousand crore.

Montek Singh Ahluwalia: That is a projection of what will happen in the coming year.

Karan Thapar: But you waited till then. Couldn’t you have acted earlier?

Montek Singh Ahluwalia: All you are saying is should you not have changed the prices earlier. Actually the price adjustment that we have made is a small part of the total burden because the judgement of the moment is that we point the right direction. But a lot of this burden is being borne by reduction in taxes and provision of oil bonds and so on.

Karan Thapar: You say that you should be pointing at the right direction but pause for a moment and think what you have actually done? Rather than get petrol consumers who can afford to pay a holistic price—to pay a price that approximates the real price of oil—what you have done is to continue to subsidise them with money that can be better used for the poor. You are favouring the rich and you are denying an opportunity to the poor. Is that fair economics?

Montek Singh Ahluwalia: Well that is not actually true in the case of petrol by the way. Because petrol is one product partly because of the tax burden on it is quite comparable with the international price. Infect earlier, petrol prices in India were much above international prices. The real subsidy is on LPG and on kerosene and a little bit on diesel. This is a judgemental matter. This is huge price increase. Kerosene is used by the poorest people in the rural areas and the government consciously decided not to increase the price at present.

Karan Thapar: Absolutely. But petrol and LPG is used by the top 15 per cent of the country. They can afford to pay more. Morally they ought to pay more and you would have a better sense of economics if they did pay more. The only problem is that you lack the guts to make them pay more.

Montek Singh Ahluwalia: Well it is a tough decision. I think the fact is that generally there is resistance in the country to see higher fuel prices. All we have done is given a signal that if energy prices rise, then people will have to get ready to pay more.

Karan Thapar: Have you given enough of a signal?