Economy to grow at 6.5%-7% in FY10: C Rangarajan

Q: Last night the government increased the price of diesel and petrol. Do you see this as a first step towards deregulating petrol, diesel and cooking gas or is it just a one-off ad hoc measure?

A: This thing has also been done in the past. We have also increased the prices of petrol and diesel in the past therefore this by itself does not give an indication whether or not further policies will be perceived or not but even the committee that I had headed for sometime ago had recommended that the prices of petrol and diesel need to be adjusted depending upon the behavior of crude prices in the global market. We really need to look at even more closely of what needs to be done with the prices of kerosene and gas supply because the subsidy that the companies have to bear as a result of the prices charged for kerosene and LPG is much more. We really need to think about it, so as far as petrol and diesel is concerned - yes amount of freedom should be given to petroleum companies to adjust prices perhaps if the price of crude rise beyond a particular level the government may intervene but I think between a range that may be prescribed the petroleum companies should be given the freedom to fix the prices of diesel and petrol.

But as far as kerosene and LPG are concerned, we really need to think very hard. There is a very amount of subsidy that is going in the case of kerosene. The committee headed by me had suggested that we need to make a distinction between BPL families and other families. We need to provide kerosene at subsidized prices to the BPL families but not to others and therefore a system has to be introduced for that. Similarly for LPG also as such is not a necessity in the true sense of the term. It is being consumed by all sections of the society. One suggestion that has been made is that we supply upto about 6-7 cylinders a year at subsidized prices and any intake beyond 6-7 cylinders a year should be charged at a higher price. But we need to think in terms of that but as far as the price rise is concerned, it is a one-off activity and we do not know whether it will be followed up by other changes in policy.

Q: One of the suggestions we have had in this series - it came from Mr. Yashwant Sinha a former Finance Minister is that the best way to plug leakages and also to better direct the subsidies would be to do direct cash transfers. He says that these days electronic cash transfers make this possible. Do you think a cash transfer make sense or is it too complicated and sophisticated for India?

A: Direct cash transfers are a form of providing subsidies. They are only a mechanism for providing subsidies. In many countries in Latin America conditional cash transfers have been attempted a means of providing subsidies to families in order to achieve certain objectives. That is if the families sends the children to school then a subsidy is provided. Therefore some cash transfer mechanism can be attempted but that cannot be a total substitute for all subsidies. I think we need to address the subsidies directly. Fertiliser subsidies are too large then we need to find out a mechanism by which only targeted groups receive the subsidies. The advantage of direct subsidies as against cash transfer is that these subsides can be directed to achieve a certain objective.

If the use of fertilisers is important then I think it is possible through the subsidy mechanism to achieve that particular objective but in order to do that I would say that not all farmers need fertiliser subsidies. We had made a suggestion that a certain quantity of fertilisers be supplied to all farmers at a subsidized price and above that quantity all farmers should receive it at the market price.