New Delhi: The government raised the price of diesel by Rs.
5 per litre on Thursday, prompting angry responses from allies Mulayam
Singh Yadav and Mamata Banerjee, who have demanded a rollback. The price
hike is aimed at reining in the fiscal deficit and staving off the
threat of becoming the first in the BRICS
(Brazil-Russia-India-China-South Africa) group of emerging economies to
be downgraded to junk.
The Cabinet Committee of Political Affairs
headed by the Prime Minister left kerosene and petrol rates untouched.
It also decided to restrict the supply of subsidised cooking gas to six
cylinders per household in a year. The government says about 44 per cent
of the total domestic LPG consumers, who consume 6 cylinders or less
each year, will not be affected by this decision.
While prices of
petrol have been deregulated, diesel is a partially deregulated
product. In the past two years, diesel prices have been hiked twice.
West Bengal Chief Minister and Trinamool Congress chief Mamata Banerjee
said, "We want rollback. I am shocked. The matter is very serious and
sensitive; we can't compromise with the people's issue. We will discuss
in our party meeting and our plan of action."
"If people do not
mind, I will be most happy to withdraw support (to the UPA). If I
withdraw support then other parties will provide support to them. And,
then ask why we left the UPA which led to its collapse. People had
misunderstood us when we had withdrawn support earlier. Therefore, we
are having a detailed discussion in the party on these issues," she
added, announcing here party would hold a protest rally on Saturday.
The Trinamool's lone minister in the cabinet, Mukul Roy, is not
attending a cabinet meeting today that's scheduled to discuss relaxation
of Foreign Direct Investment (FDI) norms in airlines.
Another
UPA ally, the DMK, too has said it opposes the hike. DMK chief M
Karunanidhi wants UPA chairperson Sonia Gandhi to convene a meeting of
the alliance's coordination committee. The UPA coordination committee
was set up recently to help keep allies in loop on critical policy
decisions.
The Samajwadi Party, which provides external support
to the UPA, also said it wants an immediate rollback. "The decision is
ill-timed and will hurt the common man," Uttar Pradesh Chief Minister
and Samajwadi Party leader Akhilesh Yadav told NDTV.
Even the
Congress says it was not in favour of such a steep hike. General
Secretary Digvijaya Singh said, "We are not in favour of a hike in
diesel prices to such an extent because it hurts the farmers and common
man. At the same time, there are some unpleasant decisions that have to
be taken by the government by taking an overall view of what is best for
the country."
Reacting to the diesel hike, C Rangarajan, chairman of the Prime
Minister's Economic Advisory Council, said the government had taken the
right decision, and that fiscal deficit had to be contained. He told a
private TV channel that an increase in diesel prices in India should
help avert a credit rating downgrade for the country.
The BJP
has slammed the government and senior leader Yashwant Sinha warned of
mayhem in the economy. "This is going to cause undue hardship. Prices
are not under control. This will lead to overall inflation," he said.
Prices, he said, could have been increased in small doses.
The
Left parties too want a rollback. Gurudas Das Gupta of the CPI said, "I
have never seen such a massive increase. It will stimulate inflation and
aggravate the economic slowdown, which will cost jobs. We will protest
in every way we can."
However, the price hike led to some respite for the oil companies. State-run oil marketing companies are losing Rs. 550 crore everyday on under-recoveries as a result of higher crude prices in the global markets. They make a loss of Rs. 17 per litre on diesel sales, Rs. 32.7 per litre on kerosene sales, and Rs. 347 per cylinder on cooking gas sales every day.
"Diesel accounts for 53 per cent of total subsidies. Oil companies are running a deficit of Rs.
6000 crore every month. We are committed to cutting petrol prices
whenever possible. By reducing excise duty on petrol, we have brought
down the gap between the prices between petrol and diesel. A narrow
margin between petrol and diesel will be good for economy. If prices of
petrol fall internationally, we will pass on the benefits," said RS
Butola, Chairman of the Indian Oil Corporation.
"This is a very
good decision, and will certainly help oil companies and reduce the
burden on the government in terms of subsidies. The reduction in the
excise duty on petrol is good for us," said Bharat Petroleum's Chairman
RK Singh.
The government subsidises the prices of diesel, cooking
gas and kerosene to dampen inflation and protect the poor, a popular
policy that has put a severe strain on public finances.
The
government has acknowledged earlier that a price hike is essential for
curbing fiscal deficit, a pre-condition for reviving growth in Asia's
third-largest economy. A price increase will also aggravate inflation,
as costs, such as road freight rates, will rise.
(With inputs from agencies)