Wednesday, June 18, 2008

Fuel price hike was unavoidable

by Jo Black

The price hike announced on Petrol, Diesel and LPG is on expected lines and was unavoidable said Mr K V Kamath, President, CII in a statement.

The continued rise in global oil prices had necessitated this action from the government.

CII has earlier suggested that the increasing burden of oil prices should be spread out between the consumers through a moderate price hike, the Government by reducing the indirect taxes on Crude Oil and petro-products and the oil marketing companies.

The reduction of customs duty and specific excise rate is a welcome measure and shows the government commitment to share the burden of increased global prices, said the CII President.

Prior to this hike, fuel prices were last raised in India in February 2008 - when oil prices hovered around $100 bbl - after a gap of twenty months.

Global prices have increased steeply in the past year, and the Indian oil basket now costs around $125 bbl.

It has been estimated that a 10% sustained rise, if passed through, can add as much as 1.3% to inflation.

The impact of expanding subsidies could contribute an additional 2.5% to fiscal deficit, said the CII.

The government had a very difficult task at hand, said Mr Kamath.

A situation of global slowdown, moderating growth in some sectors of the economy, stress on the fiscal deficit and high inflation in the domestic economy presented the government with a tough balancing act.

It is hoped that the growth momentum would not be impacted too hard by the oil situation, said the CII President.

India cannot afford to compromise its growth process and needs to better target the subsidy outgo in order that the poorest are protected.

This is also a time, when it really need to take a very close look at India’s energy efficiency and conservation measures, the CII President added.

Oil prices are expected to rule at high levels in the medium and long term.

Therefore, policy measures must be put in place for longer time horizons.

The necessity of a robust and well-organised public transport system in both urban and rural areas cannot be denied.

Energy saving mass transit systems like Metro-rail, mono-rail, high-capacity buses, and smaller public vehicles need to be urgently promoted.

A system of incentives for hybrid vehicles, electric cars, traffic management, and energy efficiency can be instituted.

At the same time, exploration and production need to be stepped up, and usage of alternative energy sources expanded.

With over 70% of India’s oil demand being met from imports, it is imperative that the country has an oil conservation target, said CII.

India should target to reduce oil imports by 10% by 2010, said CII.

CII also suggests that there needs to be a strong partnership between the Government and Industry to achieve this target and a system of recognition should be instituted to reward those companies that have excelled in energy efficiency and conservation.

 

 

 

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