Montek wants fuel subsidies cut further to tame inflation

With reforms improving investor sentiment, Planning Commission deputy chairperson Montek Singh Ahluwalia wants subsidies on fuel to be further cut for fiscal consolidation and to tame high inflation. Chetan Chauhan reports. Full interview

With reforms improving investor sentiment, Planning Commission deputy chairperson Montek Singh Ahluwalia wants subsidies on fuel to be further cut for fiscal consolidation and to tame high inflation.

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“Immediate decontrol (of fuel prices) may be too big a shock. We should put in place a policy whereby the subsidy, if any, is brought to a sustainable level and is targeted,” he said, in an exclusive interview to HT.

Ahluwalia said bringing prices of petroleum products —petrol, diesel, LPG and kerosene — in alignment with global prices would not only limit the fiscal deficit but would also send the “right signal” to consumers and producers. “We cannot expect consumers to economise on energy, or producers to invest in energy if the prices they expect are too low to encourage economy,” he said.

Ahluwalia is not against all subsidies but said their scale was not justified. Subsidy on diesel, he said, was not targeted at the poor and half of the kerosene supplied through public distribution system goes into the black market. In his view, lowering subsidy burden will have twin benefits — fiscal consolidation and reining in high inflation, key to ensure 8.2 % growth target in the 12th plan.

Terming the government’s recent reforms as a “step in the right direction, the 69-year-old Oxford educated economist hoped that investment sentiment is revived in the next 12 months and growth will pick from the low of 5.5% in first quarter of the current fiscal year.

Although the government has taken several steps, he said many more were in the pipeline.

He also said the government was moving towards a consensus on Goods and Service Tax (GST), a key tax reform stuck because of opposition by

some states. He also said the problem of fuel supply to power stations was in an advance stage of resolution and the Cabinet’s recent decision of restructuring debts of power distribution companies will further improve investor sentiment, which has been “positive” after recent government initiatives.

Revival of investor sentiment, Ahluwalia said, will help the government in meeting its target of $1 trillion investment in the infrastructure sector.

“We have done quite well in promoting projects based on PPP in the Eleventh Plan. Now the global financial system is beginning to stabilise, I hope we will be able to finance projects of the magnitude required over the next five years,” he said.

Admitting insufficient income to purchase more food was a cause for hunger, he said the government needs to ensure “inclusive growth” to create employment opportunities so that incomes of the poor rise fast, a focus of the 12th five-year plan.