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Updated: October 17, 2012 23:36 IST

Chidambaram for rational pricing of petro-goods

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P. Chidambaram during the Petrotech 2012 at Vigyan Bhawan, in New Delhi on Wednesday. Photo: Ramesh Sharma
P. Chidambaram during the Petrotech 2012 at Vigyan Bhawan, in New Delhi on Wednesday. Photo: Ramesh Sharma

Worried over rising oil subsidy, Finance Minister P. Chidambaram, on Wednesday, pitched for a rational energy pricing mechanism and correction of distortion in petrol and diesel prices resulting from unequal taxation.

“With less than adequate pass-through, subsidies on these (petroleum) products have burgeoned. The problem is that these are clearly not sustainable, and we must devise ways and means of correcting price distortions,” he said while addressing the valedictory session of PetroTech-2012.

The Minister also made a case for introducing a rational and transparent energy pricing mechanism to prevent leakages while protecting the interest of poor and vulnerable sections of the society.

Referring to the impact of high oil prices on the world economy, Chidambaram said “the relentless rise in crude oil prices is hurting growth ... In the last few years, all economies are under pressure. India is no exception“.

India imports about 75 per cent of its crude oil requirement. This has resulted in widening of current account deficit (CAD), while the rising subsidy bill increased the government’s fiscal deficit.

“Tighter product markets, rising prices and growing demand could slow and indeed have slowed economic growth and has serious implications ... and consequently a major challenge for the policy makers,” Mr. Chidambaram said.

Indian economy was growing at 9 per cent plus rate before the global economic crisis struck in 2008. The economic growth has slowed to a nine-year low of 6.5 per cent in 2011-12.

“Our macro economic outcome in 2008-09 (the year of global financial crisis) and 2011-12 (which witnessed the eurozone crisis) were significantly impacted by the rise in global prices of crude oil,” he said. While the government subsidises oil marketing companies (OMCs) for selling diesel, kerosene and LPG at below market rates, the price of petrol is fixed by the OMCs themselves.

At present, petrol price in Delhi hovers around Rs. 67.90 a a litre, while subsidised diesel costs Rs.46.95 a litre.

Mr. Chidambaram said the single most fiscal risk not only to India but to all developing countries was the burgeoning subsidy bill.

“While some provision is being made under oil subsidy year after year, we have found that provision is always way off the mark as oil prices are globally determined,” he said.

Referring to price disparities on account of unequal taxation between petroleum products, he said it results due to in-efficient substitution of one fuel with the other.

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