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PM's maths multiplies woes, divides UPA
June, 05th 2008

Prime Minister Manmohan Singh on Wednesday addressed the nation to defend the government decision to hike oil prices, saying that, in an environment of surging international crude oil prices, there are limits to which we (the government) can keep consumer prices unaffected by rising import costs .

Mr Singh appealed to state governments to follow the example of the Centre, which has sharply cut customs and excise duties on petroleum products, and reduce state-level sales tax. He explained that only minimal hikes have been effected, that the bulk of the burden of soaring global crude prices continues to be borne by the government and the public sector oil companies , and that to ask for larger fiscal concessions to cushion the price rise would be to hurt social welfare schemes and growth in general.

Mr Singh, even while acknowledging that the government move will not be a popular decision , asserted that , business cannot go on like this for ever. We need to learn to adjust to this new international scenario. We need to be efficient and economical in our use of energy. And, we need to pay the economic cost of petroleum products. Our oil companies cannot go on incurring losses. This way, they will have no money to import crude oil from abroad. He has also asked the state governments to cut their respective sales taxes to minimise the impact of the oil price hike. He has also pitched for development of alternative energies, including nuclear energy, a remark that assumes significance in the context of the efforts to see through the Indo-US civil nuclear deal.

While pointing out that to compensate the price hike, his government has also reduced taxation of petroleum products to the extent possible, Mr Singh added: But given the commitments of the government for vital development and non-development expenditure, taxes on petroleum products cannot be completely eliminated. Thus a rise in prices is inevitable.

At the same time, he maintained, Wednesdays hike in petrol, diesel and LPG was the minimum possible and that the prices of kerosene, a vital fuel for the poor, remain unchanged. We continue to bear a subsidy of Rs 250 per cylinder of LPG and almost Rs 20 per litre of kerosene. It must be appreciated that what has been done is the bare minimum, with a substantial burden being borne by the government and the oil companies.

He also made a pitch for the state governments cutting their respective sales tax. The central government, oil companies and consumers are bearing a part of this immense burden. It is therefore incumbent upon state governments, many of whom tax petroleum products substantially, to also contribute to this national effort by suitably reducing state taxes and levies.

Maintaining that the hikes was only modest, the PM told the people that they must remember that the government is bearing the burden of issuing oil bonds. Our oil companies are making a large sacrifice and are under severe stress.

But then, he added, that issuing bonds and loading deficits on oil companies is not a permanent solution to this problem. We are only passing on our burden to our children who will have to repay this debt.

Cutting down on the returns of our oil companies will choke a sector vital for the growth of the economy. We need more corrective measures in future on many fronts. In the long term, our country must have a sound strategy for energy security.

Maintaining that hard decisions like oil price hike in the given situation is a must to sustain the speed of growth and its fruits for the future generation, Mr Singh said, Today more and more of our people are enjoying the fruits of development. It is the responsibility of the government to ensure a secure future for all our people and for future generations. We cannot think only for ourselves, for the present, for the here and now. We must think about what is good for future generations. It is our duty to ensure their food security and energy security. The steps taken today are part of that process. I hope each one of you will strengthen our hands in building a strong, secure and caring India. An India where the aam aadmi feels safe, secure and hopeful about the future.

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