Feb 11, 2000|
LPG, kerosene prices may be hiked
The government is considering a move to hike the prices of liquefied petroleum gas (LPG) and kerosene (which is sold through the public distribution system) in an attempt to limit the fiscal deficit. According to reports, the hike is likely to be announced prior to the announcement of the budget.
The government had budgeted Rs 238 bn for subsidies in fiscal year 2000. As a percentage of the expected fiscal deficit (new method), the subsidy bill is 30%. The government's deteriorating financial position has led it to take a re-look at the subsidy bill.
The government is contemplating a hike of 69% or 285% in the price of kerosene. The second alternative is to increase LPG prices by 54.45%.
The move to hike prices of kerosene and LPG will have several benefits. First, the government's subsidy will be significantly reduced. This would reduce the pressure on government resources thus helping it to present a more balanced budget for the coming year. A lower deficit would in turn benefit the economy in terms of lower inflation and interest rates.
The refining companies too would benefit, as they are currently forced to manufacture these products despite the low returns associated with them. Added to this is the delay in the subsidy payments, which then compounds the problem as cash flows get distorted.
Implementing a price hike is likely to be an onerous task for the government in view of the politically sensitive nature of the issue. However, any further delay in controlling the subsidy bill will only compound the fiscal problem.
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