No dual pricing for diesel, no tax hikes either

Pranab Mukherjee, finance minister, spoke to a gathering of industrialists on Saturday at the National Conference of the Confederation of Indian Industry, assuring them that the government had no intention of adopting regressive policy measures. He said that dual pricing for diesel is not on the cards and neither is the government planning any fresh tax hikes.

These measures were aired in the media, in the context of a worsening fiscal deficit, and runaway inflation, which has forced the Reserve Bank of India to take the lead by hiking interest rates. The government can do its bit to ease inflation, by lowering the fiscal deficit –the gap between its revenues and expenses- which can ease the pressure on the economy.

This week, there was news (read here and here) that the government may cut the subsidy on diesel by making car owners pay more, the logic being that diesel used by fleet-operators and the railways can be subsidised since it helps keep the cost of goods down, but car owners deserve no such sympathy. Even if the government wants to, implementing dual pricing is next to impossible in India. It will lead to more scope for corruption and misuse, as is seen with kerosene oil.

He also said that the reasons why India’s economic position is sound and growth will continue, namely because of higher savings and investment rates, growing workforce, strong domestic demand, and rapid progress in infrastructure. All are valid points, except the one on infrastructure, where the gap between intent and action is too wide.

But then he goes on take a dig at India Inc, saying he is reiterating these reasons because Indian industry is less confident about the country’s economic prospects. He also said that while domestic consumption has retained the momentum after the economy recovered in 2008-09, the recovery in private investment growth has been tardy.

He then terms inflation as a short term challenge (which is strange, considering it has been high for years now). He then lists five challenges we have to overcome to sustain economic growth: ensure growth is inclusive in nature, upgrade skills, infrastructure investment, equilibrium between development and environment and social issues, and ensure that policy reforms continue.

All of this is old hat, but what industry chieftains will take away, with relief is that the government continues to leave the job of tackling inflation to the RBI and its focus will continue to be growth.

Though rumours of dual pricing for diesel were just rumours, investors in companies such as Tata Motors and Mahindra and Mahindra, which make utility vehicles, will be relieved that their product portfolio will not receive a rude policy jolt, at least not in the foreseeable future.

Read the FM’s speech on the PIB site here.

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