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Industry applauds government's decision on fuel price hike
June, 05th 2008

The industry today welcomed the government''s decision of increasing fuel prices amidst the spiralling global crude price, but suggested the state sales taxes be reduced to lessen the burden on the common people.

''The continued rise in global oil price had necessitated this action from the government. The increasing burden of oil prices should be spread out among the consumers through a moderate price hike, but it should reduce the indirect taxes on crude oil and petro-products and the oil marketing companies,'' CII President K V Kamath said.

 He termed the reduction of customs duty and specific excise rate as a welcome measure.

 Fuel prices were last raised in February this year, when oil prices hovered around 100 dollars a barrel. This hike came after a gap of 20 months as governments across the globe grapple with the menace of price rise.

 The Indian oil basket has also risen sharply to cost about 125 dollars a barrel.

It has been estimated that a 10 per cent sustained rise, if passed through, can add as much as 1.3 per cent to inflation. The impact of expanding subsidies could contribute an additional 2.5 per cent to fiscal deficit, the CII President said.

 Mr Kamath said the government has done a good balancing act in 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.

 He expressed hope that the growth momentum would not be impacted too hard by the oil situation and added that the country really needs to take a close look at energy efficiency and conservation measures.

 With over 70 per cent of the country's oil demand being met from imports, it is imperative that the country has an oil conservation target of reducing oil imports by 10 per cent by 2010, Mr Kamath said.

 Assocham President Sajjan Jindal welcomed the decision but appealled to the stakeholders, including political parties, not to take undue advantage of the price rise. Mr Jindal pointed out that its adverse impact would be on inflation as the price rise in petroleum products would have cascading effect, but one has to bear the burnt of the increased prices of petroleum products looking at the global scenario. The hike is expected to provide some cushion to the under-recoveries of about Rs 550-Rs 600 crore per day that the OMCs were facing.

 Industry body FICCI has welcomed the government's multi-pronged approach and said the sharing of the burden will ensure that the direct impact on the retail consumers is contained. PHD Chamber was of the view that the government should have used this opportunity to end cross-subsidisation of Kerosene as well. ''The poor could be subsidised directly though income coupons or food stamps,'' PHD Chamber said.

 FICCI has advocated the restructuring of the sales tax regime on petroleum products at the state level, along with the need for targeting subsidies to the needy by way of direct cash transfers rather than providing subsidised fuel.

''Providing subsidised fuel not only leads to wasteful consumption but also results in diversion of fuel towards adulteration of petroleum products,'' FICCI said.

 However, the Confederation of All India Trades (CAIT) has criticised the hike saying this hike will effect of prices of the commodities, which is expected to rise between 10 to 15 per cent.

 ''The abnormal price hike is unjustified and will add to uncontrollable inflation. It will put heavy financial burden on the pocket of consumers and will prove to be against the interest of trade and industry,'' CAIT National President B C Bhartiya said.

 Mr Bhartia suggested that instead of hike, a restructuring of the taxation system would have been more desirable.

 The government has failed in its fiscal monitory and taxation policy and there is no way of hope of adopting any corrective measures from the government, he said.

 The chambers have also sought government's focus on strengthening the public transport system in both urban and rural areas saying this will go a long way in providing respite to the rising energy demand.

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