Diesel prices hike on cards after much awaited presidential election

13 Jul 2012 Evaluate

In a bid to rein in the burgeoning fiscal deficit, the government is likely to hike the price of heavily subsidized and widely used fuels such as diesel, after the much awaited presidential election on July 19, as the downgrade sword continues to hang around the neck of India’s sovereign rating. However, any decision is unlikely to be taken by the government, with thin majority, before elections for the two top constitutional posts, at the altar of economic policies. It is reported that diesel prices could be hiked either after presidential election on July 19 or after appointment of the new vice-president on August 7, 2012.

The speculation is rife that the government this time around may go for Rs 5 per litre hike, after being forced to partially roll back Rs 7.54 hike in petrol prices on May 23, following strong backlash by Opposition parties as well as a UPA ally, the Mamata Banerjee-led Trinamool Congress.

The ministerial panel on fuels, back in June 2010, took a bold, in principle decision to deregulate diesel prices. But the development on this decision has been static in backdrop of political unfeasibility in the labyrinth of coalition politics. However, the government this time around, is left with no-option, rather than hiking diesel prices, to prevent downgrade of India's sovereign rating by Standard & Poor's (S&P), which could trigger an exodus of foreign investors. Further, the government, which is estimated to be shouldering diesel subsidy burden of around Rs 80,000 crore annually, is also estimated to have cooking gas and Kerosene price hike on cards.

Back in April, citing slow progress on its fiscal situation, as well as deteriorating economic indicators, Ratings agency S&P slashed India's outlook to negative from stable, with a further threat to downgrade India’s country’s credit rating to junk status on account of falling growth prospects for Indian gross domestic product, and political paralysis threatening fiscal reforms. S&P in all serves a 90 day’s notice to governments to take corrective action, with around two months of the notice period remaining for India, after its outlook was rated negative, the uproar for price hike gains momentum.

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