Drought likely to delay fuel price hike: Montek

The drought threatening India due to elusive monsoon rains would make it politically harder for the government to increase prices of subsidised fuel, which would delay a reform needed urgently to control the country's fiscal deficit, Reuters reported quoting Planning Commision deputy chairman Montek Singh Ahluwalia.

The monsoon rains in India have so far been 22 per cent deficient and were not expected to pick up enough to avert a drought, which could affect both crop output and rural incomes, increasing reliance on subsidised fuel such as diesel for farmland irrigation.

Ahluwalia said it was unlikely that the Indian economy would do any better in 2012-13 than it did in 2011-12, when it recorded its slowest rate of growth in nine years.

The critical pressure point for the government is its fiscal deficit.

"Between the economics of what needs to be done and the politics of what is feasible there is usually a gap," Ahluwalia. "That gap increases if there is a drought."

Last year, slowing growth and higher spending because of fuel and fertiliser subsidies led to India overshooting its deficit target.