Subsidised auto and cooking fuel are definitely going to become passé, if Finance Minister P. Chidambaram’s statement on Wednesday is any indicator.

“The current level of subsidy (on petroleum products) is not sustainable,” he said adding that the current pricing system of petroleum product is not conducive for economic policy decisions. The Minister was addressing the valedictory session of the biennial Petrotech Conference here.

“With less than adequate pass-through, subsidies on these products (diesel, kerosene and LPG) have burgeoned. The problem is that these are clearly not sustainable and we must devise ways and means of correcting the price distortions,” the Finance Minister said.

Chidambaram’s statement comes at a time when the consumers are just coming to terms with the hike in diesel prices and a cap on the number of subsidised cooking gas cylinder available to each household. If Chidambaram’s statement gives little comfort to the consumers, he did not offer much to the public sector oil marketing companies also.

The oil companies after a record loss in the first quarter are preparing to announce financial results for the second quarter (June-September) without any compensation from the Government on account of selling diesel, domestic LPG and PDS kerosene below the cost price.

In fact, the Minister voiced concern on the widening of the current account deficit and rising subsidy bill that has increased the Government’s fiscal deficit. India imports about 75 per cent of its crude oil requirement.

“The single most fiscal risk not only to India but to all developing countries is the burgeoning subsidy bill. While some provision has been made under oil subsidy year after year, we have found that provision is always way off the mark as oil prices are globally determined,” Chidambaram said.

“Tighter product market, rising prices and growing demand could slow and indeed have slowed economic growth and has serious implications for the welfare of citizens and consequently a major challenge for the policy makers,” Chidambaram explained.

Appealing to oil producing countries not to engage in relentless price hike of crude oil, the Finance Minister said that the countries which have resources must exploit and sell at reasonable price to those who do not have or have just little bit.

shishir.sinha@thehindu.co.in

(This article was published on October 17, 2012)
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