The government may again raise diesel prices by Rs. 4-5 a litre over the next six months, demonstrating its intent to walk the talk on fiscal discipline and nurse the government’s delicate balance sheet back into health, despite political risks.
Sources told HT the government planned to slash the subsidy outgo on diesel to Rs. 8-9 litre by the end of March 2013, from the current Rs. 14 — implying a hike in the transport fuel’s retail prices.
Last month it raised diesel prices by Rs. 5 a litre, triggering howls of protests.
High subsidies have widened the government’s fiscal deficit — shorthand for the amount of money it borrows to fund its expenses — limiting its elbow room to spend on infrastructure and development schemes to spin jobs and multiply income.
High diesel prices will likely knock up prices as the cost of ferrying goods goes up, but the government’s economic managers, battling to reverse a severe slowdown, appeared to be in favour of short-term price pains over medium-term growth prospects, sources told HT.
Food and fertiliser subsidies, however, will be left untouched, keeping the concerns of the “aam aadmi” in mind, a finance ministry official said.
“While it has already been clarified that subsidies on food and fertiliser will not be cut, the leakages in the fertiliser subsidy outgo will be addressed,” the official said.
The plan to rein in the deficit, expected to be more than 5.3% of GDP this year, broadly draws from the fiscal consolidation roadmap that a committee headed by former finance secretary Vijay Kelkar has laid out in a recent report.