CII urges Indian government to rationalise prices of diesel and cooking gas swiftly.

In a statement, the CII said the impact of diesel price regulation is evident in multiple sectors of the economy and it is obvious that diesel subsidy is doing more harm than good in its various ramifications.

'The government should move forward swiftly on the route of rationalisation,' the statement said. On May 23, in the steepest increase ever, petrol rates were raised by a massive Rs 7.54 per litre, the first hike in six months. Asking the Government to reduce fuel subsidies, the chamber said for a number of decades, such subsidies played a useful role in buffering the meagre incomes of people.

'However, in 2012, fuel subsidies may perhaps do more harm than good and distort the energy economics of India. Instead of lowering inflation, they actually contribute by significantly increasing the government’s outlay,' it said.

India imports almost 80 percent of its oil requirements and with depreciating currency, even at present global prices, the impact on India is like that of an 'oil shock', it added. 'Today, for every litre of imported diesel, the Government pays a subsidy of Rs 15. A complex system of duties and cess, which vary from state to state, distorts the entire diesel pricing mechanism,' CII said. On the apprehension that raising diesel price will push up inflation, it said indirectly, diesel price is already contributing to inflationary pressure through a ballooning fiscal deficit. Underrecoveries from oil have shot up to Rs 1,39,000 crore for the state-run oil marketing companies, the statement pointed out.

'However, given the volatility in crude and sharp rupee, it is very likely that this subsidy amount will be exceeded — a prospect that could impair every effort of the government to bring fiscal deficit under control', the statement said. The impact of increase in prices would be far higher on profligate diesel consumers than on the ordinary person, it said, adding that rationalisation of diesel prices should incentivise power production. It also said underrecoveries could be shared by the central government, state governments and consumers.

'Industry feels that subsidy could be equalised on petrol and diesel. It is also possible to undertake supply of diesel to targeted groups such as farmers for tractors and water pumps through other channels,' the industry body said.

On LPG, the statement said the huge subsidy on urban use of LPG should be phased out. The CII said it is in favour of a programme to cut consumption of oil by five percent in the course of the 12th Plan period, the report added.

Source : automotivehorizon.sulekha.com