Failure to pass on the energy prices will prove detrimental for the sector: Ahluwalia

The delay in Empowered Group of Ministers’ decision on revision of fuel prices has raised the concern on the impact of rising fuel subsidy on government finances. Expressing concern over the delay in revision of fuel prices the Planning Commission Deputy Chairman Montek Singh Ahluwalia said, 'Failure to pass on the energy prices will effectively kill the energy sector and therefore killing its capacity to invest in exploration and development.”

Expressing similar view, C Rangarajan, Chairman of Prime Minister’s Economic Advisory Council (PMEAC) said, 'the OMCs (Oil Marketing Companies) are losing in a big way. If the diesel prices are not raised then the burden on the budget will also increase'. C Rangarajan is supporting deregulation of diesel price to reduce the subsidy burden of the government. At present around 9% of India’s GDP is being spent on the energy and other subsidies. He also said the timing has to be decided but 'I think the direction in which we have to move is very clear. We need to move towards adjusting diesel prices in line with the international crude prices.”

On the issue of protecting common man from increased oil prices Montek Singh Ahluwalia said, 'It is painful, it is difficult, we have to protect the poor and all the rest of it... but no strategy that fails to pass on the higher energy prices is going to be consistent with growth. Unless you believe that budgetary resources will somehow fill the gap. But, as we have already seen... budgetary resources are not there. 'There is absolutely no doubt in my mind that if global energy prices were to fall, it would benefit India's growth rate. It does not however, mean that since those energy prices are not going to fall, we should keep the energy prices low... in order to benefit our growth rate,' he added.

Ahluwalia’s comment comes at a time when government is fighting with escalated inflation, the wholesale price index for month May rose to 9.06% from 8.66% April. This increase in inflation was due to increase in the price of manufactured products and petrol prices.

As per the oil ministry, presently OMCs are losing Rs 450 crore every day and delay in price hike will worsen the financial condition of OMCs. Last month, OMCs had hiked petrol prices by 8.6% on account of increased international crude oil price. OMCs are demanding to increase in the price of diesel, kerosene and cooking gas to bridge the gap between buying cost and selling price. Presently OMCs have to sell these petroleum products at regulated price and this is the main reason of increasing revenue losses.