Get ready to spend more on electricity, auto fuel and cooking gas, as the push for aligning the energy prices with that of international market gathers momentum.

Increase in fuel costs – coal, gas, liquid fuel – will result in rise in end product prices.

Senior economists of the Government are of the view that over the years the country’s energy prices have become misaligned and are now much lower than global prices for many products.

Untargeted subsidies

“The extent of misalignment is substantial, leading to large untargeted subsidies,” the Economic Survey 2012-13 said.

“Aligning domestic energy prices with the global prices, especially when large imports are involved, may be the ideal option as misalignment could pose both micro- and macro-economic problems,” it added.

While at the micro-economic level underpricing of energy to the consumer not only reduces the incentive for being energy-efficient, it also creates fiscal imbalances. Leakages and inappropriate use may be the other implications, the Survey states.

“Underpricing the producer reduces both his incentive and ability to invest in the sector and increases reliance on imports,” it added.

Controlling expenditure on subsidies is something which the Finance Ministry has been indicating for sometime now and the economists also state that “it will be crucial.”

“The domestic prices of petroleum products, particularly diesel and liquefied petroleum gas (LPG) need to be raised in line with prices prevailing in the international market,” the Survey says.

Auto, cooking fuel

Steps to rationalise prices were initiated in June 2010, when the Government gave the public sector oil marketing companies the freedom to fix petrol prices periodically. In January, it allowed gradual increases in diesel prices intended to reduce the under-recoveries. It also put a cap on the number of subsidised LPG cylinders available to each household annually and revised its price.

Now, more such measures are expected.

(This article was published on February 27, 2013)
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