Government needs to take a call between subsidy and fuel price hike: Basu

Two senior policymakers on yesterday indicated that the current turbulence in the global crude oil prices might force the government to raise diesel and fuel prices.

"In such circumstances (if oil price rise is significant) the government will either have to bear the additional cost or pass it on to the consumer. However, in such a case, either decision would be difficult," finance ministry's chief economic advisor Kaushik Basu said while addressing the 2011 IIF Spring Meeting yesterday.

According to Basu, given that 75 per cent of the energy needs of India have to be met through imported crude oil, the steep rise in oil prices spelt bad news for the government.

The government would have to take a tough call between shelling out more subsidy and passing the rise to consumers, he said, adding the government would be forced to recalculate its subsidy allocation on petroleum products.

"If crude prices go up sufficiently high then so does our calculations on subsidies," he said.

Meanwhile, according to Reserve Bank of India deputy governor Subir Gokarn, the government would have to pass on a higher crude oil burden to consumers if it was serious about meeting the fiscal deficit targets for 2011-12.