Giving a clear indication that more fuel price hikes are on the way, finance minister P Chidambaram on Wednesday expressed concern over India's oil subsidy bill and its impact on the fiscal situation. He made out a strong case for correcting price distortions, especially in diesel and kerosene.
"With less than adequate pass-through, subsidies on these products (diesel, kerosene and LPG) have burgeoned," he said addressing the PetroTech conference 2012.
"The problem is that these (subsidies) are clearly not sustainable and we must devise ways and means of correcting the price distortions," he said.
President Pranab Mukherjee had on Monday emphasised on the need to align domestic fuel prices with global rates - an indication that another price hike is in the offing. "In the present international environment of rising petroleum prices, greater alignment of domestic prices to global prices is in the interest of consumers as well as investors," Mukherjee had said.
Chidambaram said that as India imports about 75 % of its crude oil requirement, the current account deficit (CAD) has widened and the rising subsidy bill increased the government's fiscal deficit.
"The single largest fiscal risk, not only to India but to all developing countries, is the burgeoning subsidy bill," he said. "While some provision has been made under oil subsidy year after year, we have found this is always way off the mark as oil prices are globally determined."
He said India's macro economic outcome in 2008-09 (the year of global financial crisis) and 2011-12 (year of the euro zone crisis) were hit by crude oil price surges.