PM hints at cutting oil subsidies

Says underpricing has hit investment growth

Prime Minister Manmohan Singh on Saturday hinted at more rationalisation of fuel prices to check rising government expenditure on unsustainable subsidies.

“It is necessary that we all understand that the subsidy bill, as it has grown in recent years… We need to address these issues even as we ensure that the poor and the vulnerable are effectively protected,” Singh said at the annual general meeting of industry chamber FICCI.

The prime minister said the underpricing of energy, particularly electricity and petroleum products, has greatly affected the resources available for investments in infrastructure as well as and social development, apparently hinting at some more corrections in oil pricing in the coming times.

The government had recently hiked the price of diesel by Rs 5.63 per litre and put a cap on supply of subsidised LPG to six cylinders per household in a year. Both the decisions have resulted in large scale protest from public as well as political parties.

Buttressing his government’s decision to cut subsidies on diesel and LPG cylinders, Singh said subsidies on oil alone were more than what the government spent on health and education put together.

Singh also said that the unsustainable rise in subsidies were responsible for a bloating fiscal deficit, which reached 5.9 per cent of GDP this year.

“This was clearly unsustainable,” he said, adding, Finance Minister P Chidambaram has come out with a roadmap to reduce it to 5.3 per cent this year and to 3 per cent by 2016-17.

Politically difficult

Singh said some of the decisions government took were “politically difficult”, “but we had the courage of our conviction and the interests of our people at heart,” he said.

He also emphasised the government’s intent to get passed two important tax legislations. “Direct Tax Code and the Goods and Services Tax Bills are high on our priority. The Land Acquisition Bill recently approved by our Cabinet with all the misgivings (expressed by the industry) will soon usher in a more fair and transparent regime for land acquisition,” he said.

Singh said the steps recently taken by the government were only the beginning of a process to revive the economy and take it back to its trend growth rate of 8 to 9 per cent.

“We need to complete the exercise that was begun on GAAR and taxation of the IT sector. The day before yesterday, the Cabinet has approved the constitution of a Cabinet Committee on Investment.