Reply #76: Do Politicians Have the Guts to Raise Fuel Prices? [View All]

http://blogs.wsj.com/indiarealtime/2011/05/06/do-politicians-have-the-guts-to-raise-fuel-prices/

It doesn’t take a genius to see that India’s current policy of massively subsidizing fuel prices is unsustainable, particularly with global crude oil prices now topping $100, and that the current path could dampen the nation’s economic growth, widen its budget deficit, and make India less energy secure over time.

And yet, New Delhi doesn’t seem to have the political guts to pass on the costs of rising prices to consumers by raising prices at the pump. The stakes are only getting higher and prominent voices in the government are starting to acknowledge the obvious, that India can’t keep all its promises – to its own population and the world – if it stays on this course.

No less than the economic adviser to Prime Minister Manmohan Singh told Dow Jones Newswires Thursday that ballooning subsidies for oil will make it tough for India to meet its deficit target of 4.6% for the fiscal year ending in March, down from 5.1% in the previous year. He also revised one half percentage point downward the nation’s estimate of GDP growth to 8.5%, a sign that all is not well in the Indian economic engine.

Deepak Mahurkar, associate director of the oil and gas practice at PricewaterhouseCoopers in India, said there are discordant voices in the Indian establishment about how to proceed on oil prices, with elected officials finding it politically difficult to raise prices, even though various elements of the bureaucracy increasingly see the writing on the wall.