In a move fraught with political risks, the government on Thursday raised diesel prices by Rs. 5 a litre — the steepest ever hike — and capped the sale of cheaper cooking gas to six cylinders a year for each family.
But the government’s economic managers, battling to reverse a severe slowdown that has hit jobs and income growth, have chosen to suffer short-term price pains for the sake of medium-term growth prospects.
The decision to limit the sale of subsidised liquefied petrol gas (LPG) will hit the monthly kitchen budget of households, as every seventh LPG cylinder in a year is now likely to cost Rs. 743, nearly double the subsidised price of Rs. 399.
For the remaining six months of the current fiscal (October 2012 to March 2013), each consumer will be entitled to a maximum of three cylinders at cheaper rate. “The market rate of LPG cylinders at non-subsidised rates will be notified by oil marketing companies on a monthly basis,” a petroleum ministry statement said.
The government also removed the subsidy on branded diesel, which will now be sold at market rates. It, however, left kerosene prices unchanged, and spared an increase in petrol price by cutting excise duty by Rs. 5.50 a litre.
The government had last increased diesel prices in June 2011 and high international crude oil prices had forced oil companies to sell fuel at prices much below cost. The government bears a part of this cost by handing out cash payouts to state-owned oil companies.
High subsidies, however, have widened its fiscal deficit — shorthand for the amount of money that government borrows to fund its expenses — limiting its elbow room to spend on infrastructure and development schemes to spin jobs and multiply income.
Department of Economic Affairs Secretary Arvind Mayaram said the hike in diesel prices was a “difficult but necessary decision”.
Expectedly, the decisions, taken at a Cabinet Committee of Political Affairs (CCPA) meeting chaired by Prime Minister Manmohan Singh, triggered howls of protest from the UPA government’s key allies and political rivals. Key UPA ally, the Trinamool Congress said it was not consulted and was “shocked” by the decision to hike prices.
“We can tolerate anything but not the burden on common man. This is not acceptable to us,” said party chief and West Bengal chief minister Mamata Banerjee.
Principal opposition party Bharatiya Janata Party (BJP) also condemned the government’s decision. The CPI(M) said the price hike was a result of the anti-people policies being pursued by the UPA government.