PM unlikely to deregulate diesel Cites Need For Subsidy In Districts With Rainfall Deficiency Of Over 50%

New Delhi: Prime Minister Manmohan Singh virtually ruled out diesel price deregulation for now as he referred to the government move to continue with diesel subsidy in districts that had a rain deficit of 50% or more. He also said taming inflation in the current year would be difficult against the backdrop of patchy rainfall. 
    Economists and policymakers have been urging the government to deregulate diesel prices to help reduce the losses of state-run firms and limit the pressure on government finances. 
    But the spectre of drought and the political fallout of deregulation of diesel prices at a crucial time may force the government to put the issue on the back-burner for now. "...we must also control inflation. This would pose some difficulty because of a bad monsoon this year," Singh said in his Independence Day speech on Wednesday while pointing to the need to forge political consensus to enable the government to implement economic reforms and take steps to revive growth and investment. 
    "However, we have taken many measures to deal with the situation. In districts where there has been a deficit of 50% or more in rainfall, diesel subsidy is being provided to farmers by the government. Seed subsidy has been enhanced," Singh said, detailing measures to provide relief to farmers. 
    Economists, however, criticized the indication from the PM that diesel price rationalization may be put off. "Like many others, he has played the diesel price effect both ways. If an increase in diesel prices is considered inflationary, then why not lower prices since inflation is your number one problem," said Surjit Bhalla, chairman of Oxus Research & Investment. Failure to tackle the problem of diesel prices may hurt government finances and prove to be an obstacle for the ruling UPA coalition to limit the fiscal deficit. Any slippage on the fiscal deficit target would also make it difficult for the Reserve Bank of India to ease interest rates to protect growth. 
    Singh said he expects the economy to perform a shade better than the previous year. "You are aware that these days the global economy is passing through a difficult phase. The pace of economic growth has come down in all countries of the world. Seen together, the European countries are estimated to grow at 0% this year," Singh said. "Our country has also been affected by these adverse external conditions. Also, there have been domestic developments which are hindering our economic growth. Last year our GDP grew by 6.5%. This year we hope to do a little better," the PM said. 
    Singh said the government will take steps to protect growth and promote investment. "I promise to you today that our government will work hard for India's rapid economic growth and for shielding the country from the effects of the global economic slowdown," the PM said. "We will leave no stone unturned to encourage investment in our country so that our entrepreneurs can make a substantial contribution to our economy," he added in comments aimed at boosting investor sentiment. 
SLOWDOWN BITES 
    The pace of economic growth has come down 
    in all countries… Seen together, the European countries are estimated to grow at 0% this year 
t We must also control inflation. This would pose some difficulty because of a bad monsoon this year 
t I promise… govt will work hard for India's rapid economic growth & for shielding country from effects of the global economic slowdown