Montek warns on failure to pass high energy prices to users

Planning Commission Deputy Chairman Montek Singh Ahluwalia today cautioned that failure to pass on the energy prices to consumers will "effectively kill the energy sector".

Echoing similar views, Chairman of the Prime Minister's Economic Advisory Council (PMEAC) C Rangarajan 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".

Ahluwalia's comment comes at a time when government is fighting high inflation which is hovering around 9% mainly due to high petrol price.

The  wholesale price inflation released today for the month May stands at 9.06% higher on back of rising manufactured goods and petrol prices. The WPI was 8.6% in April this year.

"Failure to pass on the energy prices will effectively kill the energy sector and therefore killing its capacity to invest in exploration and development," Ahluwalia said here addressing a seminar.

 In the present scenario, the government has deregulated the petrol pricing but diesel, kerosene and cooking gas (LPG) prices still continued to be regulated due to which oil marketing companies including Indian Oil, Hindustan Petroleum and Bharat Petroleum are suffering under-recoveries.

About insulating the common man from the rise in energy prices, he 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".

According to estimates about 9% of the India's gross domestic product is spent on energy and other subsidies.  He pointed out, "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. On deregulating diesel prices, Rangarajan 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," he said.