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PM defends fuel price hike; says extra subsidies could trigger budgetary crisis

Onboard Air India One, Sun, 13 Nov 2011 ANI

Onboard Air India One, Nov.13 (ANI): Defending his government decision to hike fuel prices, Prime Minister Manmohan Singh maintained that giving extra subsidies to oil companies could cause a budgetary crisis, while underscoring that inflation was indeed a worrisome problem.


He was talking to media aboard the aircraft on Saturday, while returning to New Delhi from Male after attending the SAARC Summit.


India's state-run fuel retailers recently raised petrol prices by 2.7 percent - about 1.82 rupees a litre - in a move that the government claimed would help them cut revenue losses. However, many believed that it would only add pressure to the already high inflation in Asia's third-largest economy.


After the price increase, a litre of gasoline costs 68.66 rupees in Delhi, while prices in other places vary depending on local taxes. This was the fourth increase in gasoline prices in 2011.


The three state-owned firms, who tend to move their prices in tandem, last raised gasoline prices by about five percent in September.


The fuel price hike has come as a shocker for India's lower and middle classes, who are finding it increasingly difficult to meet their household expenses due to skyrocketing costs of food and other essential commodities.


In the course of his news conference, the Prime Minister urged masses to 'understand' the country's economic constraints.


"The budgetary (fuel) subsidies amount to rupees 1.30 trillion and quite frankly, that is unsustainable burden. Therefore, I would like all our countrymen to recognise that when international prices are rising, and we have no control over international prices, beyond a point, further subsidies can only aggravate the budgetary problem. f the budgetary problem gets aggravated, inflation will again raise its ugly head," said Singh.


Any further increase in fuel rates could prove to be a political disaster for the Congress party, which has been facing flak from parties, activists and masses over corruption, scams and inflation since the past few months.


However, the federal ruling Congress party is itself nervous about angering its core constituency, the rural poor, ahead of a string of state elections beginning early next year. In the past it has given in to street protests over reform moves such as freeing up farm prices.


Meanwhile, Singh reiterated that skyrocketing prices of essential commodities were a direct result of India's robust economic growth.


"The problem of inflation, inflation is a worrisome problem and I do not deny that. Particularly, with regard to food inflation, some amount of inflation is a result of the fact that the economy today is growing at a rate of 7.5 to 8 percent per annum," added Singh.


India is beset by rising food and fuel prices, and the federal government has come under increasing criticism for failing to control inflation, which has hit hundreds of millions of poor people.


India's food price index rose 11.43 percent and the fuel price index climbed 14.70 percent in the year to Oct. 15, government data on Thursday (October 27) reflected whereas the previous week, annual food and fuel inflation stood at 10.60 percent and 15.17 percent, respectively.


Reserve Bank of India (RBI), the country's central bank raised interest rates recently for the 13th and possibly final time in a tightening cycle that began in early 2010, on expectations that persistently high inflation will finally begin to ease starting in December. (ANI)


Read More: Delhi | Bank | Congress | SAARC

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