Combination of borrowing, deficit financing and domestic price increase may be the remedy, says Shashanka Bhide
International crude oil prices have risen sharply over the last 12 months. From an average of $16 a barrel in the first quarter of the last fiscal, they are at over $30 per barrel in September 2000. While the reasons for this rise are complex, implications for India are: higher import bill, pressures on exchange rate and even greater pressures on the government to manage the prices of petroleum products that are still under the administered price regime (APM).
Prices of non-APM products are directly linked to the international prices. Prices of diesel and motor spirit are still under APM and any change in their prices would have implications to transportation cost for freight as well as motorists. Kerosene and LPG price hikes would add to the household fuel cost both for the poor and the non-poor. The inflationary potential of a hike in the prices of petroleum products is, thus, significant.
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