India Cuts Subsidies for Fuels

Heavily subsidized fuels like kerosene, for instance, are used by many poor Indians for lighting and cooking. Moreover, opposition politicians have criticized the government for not doing enough to bring down escalating prices, especially for food. Consumer prices jumped 14.4 percent in April from a year earlier.

The opposition Communist Party of India (Marxist) called the subsidy cuts a “cruel blow against the people who are already suffering.”

The G-20 meeting in Toronto this weekend might have played into the timing of the decision. But the reductions in subsidies also signals that Indian leaders have become more confident about their political mandate a year after they won a new five-year term in office. The Congress Party-led government also appears to have gotten more serious about reducing the federal deficit, which is estimated to be 5.5 percent of the country’s gross domestic product.

Still, policy makers are moving cautiously. Prices for diesel, kerosene and natural gas, which are the most heavily subsidized fuels, will increase only moderately and remain under government control for the time being.

By comparison, gasoline is not subsidized as much, and its retail price is already much higher than in the United States because of high taxes. Prices for it will increase 3.5 rupees a liter, or 29 cents a gallon, to about 55.7 rupees a liter, or $4.58 a gallon.

The increase in gasoline prices should bolster the profits of state-owned oil companies, which were not being fully compensated by the government for the subsidies. It should also help private energy companies like Reliance and Essar that sharply scaled back their fuel retailing businesses in recent years because they could not compete against the subsidized fuel sold by state-owned companies.

New York Times