Oil subsidies must go, people will understand: PM

ON BOARD AIR INDIA ONE - Saying that people will understand the perils of excessive populism that was bad for the economy, Prime Minister Manmohan Singh Tuesday said diesel prices, like petrol prices, would not be subsidised anymore by the government as “much-needed reforms” were needed in the pricing structure of fuels.

“Subsidies for petroleum products have reached a level which is not connected to sound financial management of our economy,” he told reporters on the way back to New Delhi after attending the G20 Summit in Toronto.

“The fact that petrol prices have been set free, the same is going to be done to the diesel prices - (these are) much needed reforms,” he said, referring to the decision of an empowered group of ministers Saturday.

The ministerial panel led by Finance Minister Pranab Mukherjee had allowed state-run fuel retailers to freely fix the prices of petrol, while on diesel any hike over and above Rs.2 per litre was subjected to a nod from the oil ministry.

The prime minister said these adjustments, including those on the prices of kerosene and cooking gas, were necessary, considering the high amount of subsidy that was implicit in the pricing structure of these fuels.

“But we have taken due care to ensure the interests of the poorer sections are affected to the least possible extent. That’s why the attempt to keep under regulation the prices of kerosene and LPG (liquefied petroleum gas),” he said. “I think it is manageable.”

The prime minister said he had only read the views of opposition parties, but as far as he was concerned people would appreciate the compulsions the government had been subject to in order to undertake this measure.

“Our people are wise enough to understand that excessive populism should not be allowed to derail the progress our country is making, and for which it is winning kudos internationally as well,” he added.

The prime minister also ruled out tax on overseas capital flows, saying the situation for that had not arisen.

Called the Tobin Tax, named after Nobel laureate James Tobin, such a levy seeks to discourage capital flows, especially from speculators, that have a destabilising effect on the domestic financial system.

“I think capital inflows into our country, both by way of direct investment and by way of portfolio investment, have been at reasonable levels,” he said.

“Tobin Tax has merit in particular situations but as far as India is concerned we have not reached a stage where capital flows have become a problem,” he told an on-board press conference on his return from the Toronto G20 Summit.

“We don’t face situations of the kind now which would require an imposition of Tobin Tax.”

While Brazil already imposes a 2 percent Tobin Tax, the matter also been under discussion both at the G20 and at the domestic level at the Reserve Bank of India.

During the press conference, the prime minister also ruled out any legislation to make it compulsory for corporate houses, especially those implementing state collaborative projects, to provide social services.

“I think good corporate houses are looking at what they can do in the non traditional key in providing social services, education, health facilities for their employees.

“I think that it’s a corporate responsibility which has to be shouldered by the corporate sector on its own. We are not contemplating any legislation in that area,” he said.

(Arvind Padmanabhan can be contacted at arvind.p@ians.in)