Prime Minister Manmohan Singh has ruled out rolling back a price hike in fuel prices despite pressure from his main allies, saying populist policies would hurt the economy in the long-term.
Petrol prices rose about 6 per cent and diesel prices by 7.75 per cent after the government increased factory-gate taxes and import duties on the fuels as part of last week’s 2010/11 federal budget, which stressed fiscal prudence to cut a wide deficit.
But with food prices rising at an annual rate of nearly 20 per cent, UPA allies Trinamool Congress and the DMK party, have said higher fuel prices will further hurt the poor.
“Any increase in prices does hurt some people, but we have to take a long-term view,” Singh told reporters on his way back to India from a visit to Saudi Arabia.
The government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers, particularly the poor, from sharp fluctuations in energy prices.
But it is now considering abandoning control of fuel prices, which require huge state subsidies, in order to cut the fiscal deficit to an estimated 5.5 per cent of GDP in 2010/11 from 6.9 per cent.
The economy, which is forecast to grow at 7.2 per cent in the year to March 2011, has the capacity to absorb the increase in fuel prices without putting much additional pressure on inflation, the PM said on Monday.
“The increase in fuel prices, the direct effect on Wholesale Price Index will be no more than 0.40 per cent,” he said.