High oil price can hit economy, says FM

“The rise in international oil price following political unrest in the Northern Africa and Middle East will have serious implications on the policy front (for tacking inflation),” he told reporters after the customary post-Budget meeting with the Board of Directors of the Reserve Bank of India here.   

However, without going into specifics about how to deal with the situation arising out of spurt in the global crude oil price, Mukherjee said “we will deal with the situation. We have the capacity to face the challenge.”

Asked whether the ongoing volatility of the global crude oil price could be described as “explosive”, he said “we will not say it is explosive. But the continuing rise in oil prices has created a sense of uncertainty about global recovery”.

The Finance Minister’s concern over rising global crude oil price has assumed importance as the state-owned oil marketing companies are incurring massive revenue losses by selling four mass consumed products—petrol, diesel, domestic LPG and kerosene—below cost prices.

Even as state-owned OMCs are free to determine the price of petrol as per market rate, they have refrained from making any change in retail price   despite losing Rs 4.03 per litre on petrol. Besides petrol, the three retailers are losing a record Rs 12.56 a litre on diesel, Rs 24.74 per litre on kerosene and Rs 297.80 per 14.2 kg LPG cylinder.

In the absence of reduction in duty structure on petroleum products, an across the board hike in retail prices of all petroleum products has become inevitable.   In the face of ongoing rise in global crude oil price Mukherjee will have to make a tough choice between shelling out more subsidies to state-owned OMCs or give nod to hike in retail prices of all the four petroleum products.

Asked about government’s projected borrowing in the next fiscal and its impact on the economy, Mukherjee said the government's market borrowing programme of Rs 4.17 lakh crore for 2011-12 would not disrupt credit flow to the private sector.

Giving assurance to the industry he said the government would chalk out the borrowing programme in consultation with RBI.

“It will be done in such a manner that there would be no problem for the private sector. There will be no enough room for the private sector to get from the market. There will be no disruption of flow of capital for the private sector,” he said.  

Later at a post-Budget interactive session with the National Council of the CII, Mukherjee assured the industry that the government was determined to push forward reforms in the wide range of economic fields.

“We have charted out our reform agenda in the Budget. We intend to push forward reforms in areas like insurance and pensions. We have a big agenda for carrying out reform in the indirect tax by ushering in the Goods and Service Tax,” he said.

“To carry out these reforms we need political consensus. I appeal to industry to help us build up consensus to carry out the reform agenda,” Mukherjee told the captains of industry.