Decontrolling Diesel

Freeing diesel the only option: Montek




(Courtesy: The Economic Times, New Delhi, March 14, 2011)



There are a lot of things that bother the country's chief planner, Montek Singh Ahluwalia . Topping that list is the need for reviewing existing policies and tweaking them to produce better performance. He says the Planning Commission is sometimes considered a nuisance as it has challenged the way things are done. Because the government works in silos, even those changes that everyone knows are needed become difficult to implement. This needs to change, says the deputy chairman of the Planning Commission. Excerpts from an interview to Devika Banerji and Vinay Pandey.



There is a growing divergence between growth estimates of experts and analysts, with most treating the 9% GDP growth target in FY12 with scepticism. What is your take on growth prospects?



The Planning Commission has said that it would like to get 9% in the next year (after) having done 8.6% in the current year. The Finance Ministry is saying the same thing in the Budget and so is Dr C Rangarajan. There is bound to be a range of uncertainty around any estimate but I do think some of the analysts are too pessimistic. They are perhaps over-influenced by the recent slowdown in IIP (index of industrial production), and a bit over-pessimistic about the events in the Middle East. Developments in the Middle East are indeed worrying but it is reasonable to assume that the situation will stabilise. The effect of events in Libya on the global oil market can easily be offset by Saudi Arabia. We are all making the assumption that there won't be a big surge in oil prices and they will remain around a $100-110 per barrel.



At that price India can manage to grow at 9% next year, but I agree there is a uncertainty with more downside than upside. I do not expect growth to be above 9% and it will not be a huge surprise if it is 8.5%. I should add that given global uncertainties if India does even 8 % next year, it will be regarded globally as a pretty good performance. We certainly hope to do better.



Despite some moderation in the inflation numbers, inflation is still being seen as a big threat...



Inflation remains a continuing concern. I think the government deserves credit for inflation having moderated very substantially from the double-digit level a few weeks ago but we are not in a position to say we are comfortable. The good news is that inflation is clearly moderating and I believe it will moderate further. I feel that we could end March somewhere around 7%. We should aim to bring it down to 6% in the next year. The world is not comfortable with 6% while we have been comfortable with 5-6%. Historically, inflation in India has been higher than in industrialised countries. The real worry is that we may not be able to maintain our inflation target if oil prices go through the roof.



If oil prices continue to rise, is freeing diesel prices the only policy option before the government?



The Planning Commission has been consistently of the view that energy prices should be decontrolled and India should learn to live with global energy prices. We could have a targeted subsidy, if necessary, for the poor, but the burden of high oil prices in global markets has to be passed on. I think knowledgeable people agree with this proposition in principle, but it is, of course, difficult to implement. The government has decontrolled diesel "in principle" but we have also said we will implement it in a phased manner. It's obviously not realistic to talk about decontrolling diesel prices on the eve of an election. However, looking ahead I believe decontrolling diesel is the right policy. We do not really have an alternative that is going to work.