PM makes case for rationalisation of petroleum products prices

Prime Minister Manmohan Singh today made out a case for phased rationalising of prices of petroleum products and reducing subsidies and the beginning again the process of fiscal consolidation so that growth is not jeopardised.

"Both goals of expanding new investment and achieving energy efficiency require a more rational pricing policy, aligning India's energy prices with global prices," Singh said in his New Year message to the nation.

Elaborating on the issue of rationalisation of energy prices, he admitted, "this cannot be done immediately, but we need to outline a phased programme for such adjustment and then work to develop the support for making transition.

"I realise that this will not be easy, but unless we can achieve this transition we will not be able to promote energy efficiency as much as we should, and we will certainly not be able to attract enough investment to expand domestic energy supplies".

While the government has de-regulated the price of petrol, prices of diesel, kerosene and cooking gas, are fixed by the Centre and are subsidised.

Finance Minister Pranab Mukherjee recently said that India's subsidy bill is likely to increase by about Rs1 lakh crore, over and above the outlay of Rs1.32 lakh crore estimated in the Budget, in 2010-11 mainly on account rising prices of crude and fertiliser in global market.

Reduction of subsidies, Singh is also necessary for containing fiscal deficit, which has "worsened in the past three years".

Outlining the five "key challenges" before the country, Singh said "although we have every reason to be satisfied with performance (of economy), it would be wrong to conclude that India is now unshakably set on a process of rapid growth.

"Our growth potential is indeed established. But there are many challenges we have to face if we want to maintain this growth in the years ahead...".

Singh said the average annual growth rate of the economy was around 4% before the 1980s and increased to an average of about 8% since 2004, mainly on account of economic reforms initiated by the government in 1991.

"Our biggest challenge today remains that of banishing poverty, ignorance and disease...We must remain focused on this fundamental task in the Twelfth Plan period which begins in 2012-13," the Prime Minister added.

He said that in order to achieve sustained rapid growth "we need to do more than halt the current slowdown though that is certainly the first step.  We need to usher in a second agricultural revolution...We also need to usher in the many reforms needed to trigger rapid industrialisation and to build the infrastructure which such industrialisation needs".

Referring to the inability of the government to push forward economic reforms, Singh said "some of the reforms needed for economic security attract controversy and cause nervousness. This is understandable, but we should learn from our past experience with reforms. Things that we take for granted today caused similar controversy twenty years ago.

"We should remember that change is necessary for development and while we must anticipate change, and even protect the most vulnerable from ill effects, we should not lock ourselves into a blind refusal to contemplate change".

The government, because of opposition from its ally Trinamool Congress and other parties, had to abandon key reforms like opening up of the multi-brand retail to foreign investors and FDI in the pension sector.

The Prime Minister further said that a critical element in ensuring economic security and prosperity is the need for fiscal stability.

"India has paid a heavy price in the past for fiscal profligacy. Many of us can recall the dark days of 1990-91 when we had to go around the world begging for aid ... We must ensure that the country does not go down that road once again," he said.

He said the government was concerned about fiscal stability in future because the increasing fiscal deficit.

"This is mainly because we took a conscious decision to allow a larger fiscal deficit in 2009-10 in order to counter the global slowdown ... But like other countries that resorted to this strategy, we have run out of fiscal space and must once again begin the process of fiscal consolidation," he added.

This, Singh said is important to ensure that the growth process is not jeopardised and, equally important, the national sovereignty and self respect are not endangered.

"The most important step for restoring fiscal stability in the medium term is the Goods and Services Tax. This would modernise our indirect tax system, increase economic efficiency and also increase total revenues," he said.

In the Budget 2011, the government had pegged the fiscal deficit at 4.6% of the GDP in the current fiscal. But it the first eight months of 2011-12, the deficit has already touched 85% of the Budget estimates, reflecting deterioration of the country's financial situation.

The Prime Minister further said that another important step is the phased reduction in subsidies.

"Some subsidies, such as food subsidies are justifiable on social grounds and are expected to expand once the Food Security bill becomes operational. But there are other subsidies that are not and these must be contained," Singh said.