Prime Minister Manmohan Singh on Monday sought a political consensus to raise fuel prices amid mounting pressure from cash-strapped oil marketing companies and growing concerns over soaring inflation.
Singh said it was no longer possible to insulate consumers at home from the sharp spike in global crude prices as there are limits to what the government and state-owned oil firms could give in subsidies.
"Up to a point we can and we have indeed insulated poorer sections of our society," the prime minister told a meeting of business leaders in New Delhi.
Petrol and diesel prices were last increased in February this year by Rs 2 and Re 1 a litre respectively, but kerosene — the preferred cooking fuel of lower income groups — has remained unchanged for many years.
LPG prices have increased marginally during the last four years, Singh said emphasising how the government has protected the common citizens from high global crude oil prices.
"This situation cannot continue forever. We need, therefore, wider political consensus to adopt more rational economic policies," he said.
Oil marketing companies have said their underecoveries could cross Rs 200,000 crore if the government doesn’t allow them to increase retail prices of petrol, diesel and LPG, which are currently sold at highly subsidised rates.
"We cannot allow the subsidy bill to rise any further. Nor do we have the margin to fully insulate the consumer from the impact of world commodity price and world oil price inflation," the prime minister said.
India imports about 70 per cent of the crude it needs and the government faces the twin challenge of containing import and subsidy bills while keeping any hike in retail fuel prices to politically acceptable levels, given that this is an election year.
Left parties, whose support is crucial to the survival of the UPA government, are not in favor of increasing fuel prices. Instead, they want the government to cut duties so that oil companies can continue to sell at current rates without incurring much in losses, thereby limiting risks of higher inflation.
On Monday, one of the leftist allies -- the Revolutionary Socialist Party -- withdrew its support, citing the UPA government's failure to check inflation, which has risen to a nearly four-year high of 8 per cent.