Fuel prices may be hiked soon after the Budget session, the Finance Minister, Mr Pranab Mukherjee, indicated on Saturday.
During a post-Budget interaction with financial newspapers, the Finance Minister said, “After the Budget session is over, the Prime Minister will have to consult with States, all political parties and we shall have to work on a mechanism which can address the problems, because the entire refinery capacities in the country have been built up on certain assumptions.”
Pricing strategy
The Minister was responding to a question on the Government's strategy for petro products.
He also clarified that the budgetary exercise was a “narrow means” to address the petro product pricing issue. Petro product pricing reform, he said, cannot be kept under the carpet for long. “We need to give it a serious thought,” Mr Mukehrjee added.
His remarks have come at a time when the Government intends to restrict the expenditure on Central subsidies to under 2 per cent of GDP in 2012-13. Over the next three years, it would be further brought down to 1.75 per cent of GDP.
It needs to be noted that the Government calculation of petro subsidy bill is based on crude prices of $115, while the Indian basket is hovering around $125.
Excise duty impact
When asked about the impact of the excise duty hike, the Finance Minister said “there may be questions whether it will have an inflationary impact? My answer is: It would be marginal if you go by volumes of excise duty.”
He explained that the excise duty and service tax rates have been raised not just to mop up additional revenue, but keeping in mind the tax reform process.
He said these are are designed to ultimately lead to the establishment of the Goods and Services Tax.”
However, he refused to buy the argument that excise duty hike will reduce the demand for goods, which in turn will affect the manufacturing sector as a whole.
He said that demand is not merely linked to rate of taxes. Demand will generate if economic activities accelerate, and for that the Government has taken a number of steps in the Budget.
“I could not give concession to the corporates through direct taxes. Series of measures have been announced through the budgetary exercise to lower the cost of resources, either in the infrastructure or in core investment area such as power, fertiliser, operation of aircraft, ports and shipyards, bridges, dams, affordable housing… all these are important sector,” he claimed
Interest rates
The Finance Minister also indicates that the time has come for reduction of interest rates. The Ministry, he said, believes that “we are at the end of reversing the interest rate cycle and inflation has moderated.”
In the month of February, he said, it was a one-off increase, and is expected to moderate further and then stabilise for rest of the year. This will give reason to RBI to reverse the interest rate cycle, he added.