"Diesel is on a progressive elimination of subsidies and by mid-2015, present under pricing of diesel will be removed," Planning Commission Deputy Chairman Montek Singh Ahluwalia said in his address at India Energy Congress here.
The government recently partially decontrolled diesel prices, allowing oil marketing companies (OMCs) to raise prices by about 40-50 paise per litre every month to recover their loss of about Rs 10 per litre on selling the fuel at subsidised rates currently.
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Ahluwalia said the management of energy resources in a world of scarcity is a big challenge.
"Rich countries can afford to have energy subsidies because it will not prevent them from becoming richer. But poorer countries, that want to get richer, cannot continue with it," he said.
Ahluwalia said that from a political point, it was a difficult message to convey (to raise diesel prices).
"The (energy) resources are scarce and finite and the capacity for growth and our ambitions are very high," he said, adding that domestic endowment of energy will not be sustainable without renewable resources of energy.
"We can't look at energy as an isolated issue...We have to get power, coal, gas all working together. It will not be possible to manage energy demand without energy efficiency."
Ahluwalia said there is a need to stimulate supply of non-conventional resources of energy as it is a must to have continues supply of energy.
He also said the government is exploring potential such as shale gas, though the initial assessment has not been very good.
Emphasising on the need for raising domestic fuel prices, he said diesel, liquefied petroleum gas (LPG), coal and natural gas are under priced in India.
"Indian coal is under-priced, some part of coal is sold through auction and the auction price is 30-40 per cent higher. If this under-pricing is not altered then...Incentives to invest have to be maintained by giving budgetary sops which is simply not feasible."
He also said India has a lot of potential for solar and wind energy and integrating supplies to the grid require a complex activity.