Govt’s credibility will be zero if it rolls back diesel hike: Montek

Says diesel subsidy must be cut as it is currently only benefiting those “who are driving cars”.

New Delhi : Roll back of diesel price hike will have serious implications on the credibility of the government, Planning Commission Deputy Chairman Montek Singh Ahluwalia said here on Tuesday.

TOUGH TALK: C Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, Deputy Chairman, Planning Commission, Montek Singh Ahluwalia and RBI Deputy Governor K.C. Chakrabarty during the 30th Skoch Summit in New Delhi.
TOUGH TALK: C Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, Deputy Chairman, Planning Commission, Montek Singh Ahluwalia and RBI Deputy Governor K.C. Chakrabarty during the 30th Skoch Summit in New Delhi.

“In my view, the government has taken this decision (of diesel price hike) after a lot of consideration. There should not be a diesel price hike roll back at all. If government rolls back diesel price then government’s credibility will be zero”, Ahluwalia told reporters on sidelines of SKOCH Summit.

The government’s decision to raise price of diesel by over Rs 5 per litre last week evoked sharp reaction leading to widespread demand for its roll back. According to Ahluwalia: “From economic point of view, our diesel prices are lower than our neighbouring nations. If we continue with this (subsidy on diesel), then either our oil companies would be bankrupt or our fiscal deficit will increase so much that we would have to cut plan expenditure on health and education”.

Aligning domestic fuel rates with global prices, he said, was also necessary to achieve rapid economic growth and ensure efficient use of energy sources. He further said it was necessary to cut diesel subsidy as it was not going to the needy people but to those “who are driving cars”.

On the swelling fiscal deficit, he said, “I don’t expect fiscal deficit to be 5.1 % of GDP this fiscal because this was calibrated around 7.5% economic growth. Now we know that growth rate is going to be lower….may be around 6.5, so for that reason alone the fiscal deficit would widen”.

Ahluwalia said India has the largest fiscal deficit among the emerging market economies.

“I think it will be disastrous to follow that route. It is unfortunate that in the political space, the issue is not being addressed”.

India needs series of reforms, he said, adding “maintaining fiscal credibility was extremely important and we should back the Finance Minister on the need for fiscal discipline”.

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