PM for gradual hike in energy prices, cut in subsidy

Describing the current economic situation as a difficult one, Prime Minister Manmohan Singh today hinted at tough decisions like hike in energy prices and reduction of subsidies to achieve the growth target of 8 per cent in the 12th Five Year Plan.

Inaugurating the National Development Council (NDC) meeting, Singh cautioned that "business as usual" policies will not be sufficient to achieve the scaled down growth target of 8 per cent, which he said was "ambitious".

The NDC, which comprises Cabinet Ministers and state Chief Ministers, is meeting here to approve the 12th Plan (2012-17) document.

The Planning Commission for the second time proposed reduction in the average annual growth target for the 12th Plan. It was first scaled down from 9 per cent to 8.2 per cent and now to 8 per cent.

Noting that energy prices in India are "too low", Singh said, "some phased price adjustment is necessary".

The central government and the states, he said, "must work together to create awareness in the public that we must limit the extent of energy subsidies".

The Prime Minister further said that the 12th Plan has made a case for containing subsidy as failure to control them would mean that "other plan expenditures have to be cut or the fiscal deficit target exceeded".

The Prime Minister said the current economic situation is "difficult" and steps needs to be taken to reverse the slowdown.

"The continuing crisis in the global economy has reduced growth everywhere... Our first priority must be to reverse the slowdown. We cannot change the global economy, but we can do something about the domestic constraints which have contributed to downturn," Singh said.

India's economic growth has declined to a nine-year low of 6.5 per cent in 2011-12. For the current fiscal, it is estimated at 5.7-5.9 per cent, which would be the lowest growth in the last decade.

He termed scaling down of growth for 12th Plan to 8 per cent as a "reasonable modification".

"I must emphasis that achieving an average of 8 per cent growth following less than 6 per cent in the first year is still an ambitious target... The high growth scenario will definitely not materialise if we follow 'a business as usual' policy," Singh added.

Earlier, Planning Commission Deputy Chairman Montek Singh Ahluwalia said that in view of the domestic and global developments, the growth rate "associated with scenario one (most optimistic outlook) could be scaled down to 8 per cent".

The Prime Minister emphasised that both the Centre and states should work towards increasing resources to finance programmes of inclusiveness.

"If growth slows down, neither the states nor the Centre will have the resources needed to implement inclusiveness programmes. We will either be forced to cut these programmes or be pushed into tolerating a higher fiscal deficit, which will have other negative consequences," he said.