Fresh oil subsidies could aggravate inflation: PM

"If the (fuel) prices go up, we have to either raise domestic prices or absorb the increased cost in asking the oil marketing companies to subsidise other elements of the petroleum sector, or from the budget we give additional subsidies," the Prime Minister said.

".... further subsidies can only aggravate the budgetary problem, and if the budgetary problem gets aggravated, inflation will again raise its ugly head," Singh said during his interaction with journalists yesterday while returning from the SAARC summit in Maldives.

Singh said that one of the reasons for inflation becoming a major problem that concerns "everybody is the rise in prices of fuel products." He said that 75 per cent of the country's total petroleum product requirements was imported and the government had no control over international prices beyond a point.

"Already the budgetary subsidies amount to Rs 150,000 crore. And quite frankly that is an unsustainable burden. "Therefore, I would like all our countrymen to recognise that when international prices are rising, and we have no control over international prices beyond a point," he said.

State-owned oil firms recently hiked the petrol price by Rs 1.80 per litre, the fourth increase this year, largely because of rising international crude prices and fall in the rupee valuation.

This was the second petrol price increase since September, triggering strong protests and demands from some quarters for the government intervention through measures like subsidies for the oil companies.

Talking about the overall high-price scenario prevailing currently, Singh said: "Inflation is a worrisome problem and I do not deny that, particularly with regard to food inflation."

However, the problem was not so acute in foodgrains, whose prices have been relatively stable, he said. "... but prices of eggs, prices of fish, prices of vegetables, prices of other tertiary goods in the agricultural sector are going up.

"There the demand is increasing at a rate which is much faster than the supply curve. And there are supply bottlenecks which have to be attended but which will take time," he said.

Singh, however, expressed confidence about remedial measures in due course of time, given the growing profitability of products like milk, fish and fruits.

"Some amount of inflation is a result of the fact that the economy today is growing at the rate of 7.5-8 per cent per annum. "If the economy grows at the rate of eight per cent per annum, the per capita income would be increasing at the rate of about 6.5 per cent per annum," he noted.

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