Diesel price hike will be double whammy: India Inc. leaders

September 14th, 2012 - 4:52 pm ICT by IANS  

Kolkata, Sep 14 (IANS) The government’s move to raise diesel prices by Rs.5 a litre has come under strong criticism from members of India Inc. who foresee a double whammy of slow economic growth and higher inflation.

A day after the government hiked diesel prices and capped supply of subsidised cooking gas cylinders to six, corporate leaders here said Friday that the decision was taken at a “wrong time” when the economy is cooling down.

“This may not be the right time for raising diesel prices. It will be a double whammy for the economy,” Ramesh Chembath, assistant vice president, marketing, Godrej Appliances, told IANS.

It would put further inflationary pressure on the economy when growth rate is slipping, he added.

“High inflation rate will dampen the overall demand, resulting in further slowdown. So it will have an impact on the growth rate,” Chembath said.

The growth in Asia’s third largest economy is still languishing around its lowest in three years as gross domestic product (GDP) in the first quarter of the current fiscal grew at a meagre 5.5 percent.

Chembath said the steep hike in diesel prices, initiated after more than a year, would hurt the consumers’ sentiments with apprehensions that it would affect a wide range of transportation, ranging from locomotives to heavy duty trucks, making food items costlier. The prices of diesel were last raised by Rs.3 a litre in July last year.

D.K. Vyas, CEO of Srei BNP Paribas, one of the largest NBFCs (non-banking financial companies) in India, also observed that in the short-run growth would be impacted and inflation would be higher.

“Moreover, interest rates will not come down in the short run as diesel price hike will put an upward pressure on inflation,” Vyas said.

Industry experts and economists have already cited high policy rates of the Reserve Bank of India (RBI) as one of the main reasons for the slowdown in growth. Vyas said the government would have had to take the harsh decision of a diesel price hike sooner or later to rein in its ever-rising subsidy bills as the fiscal deficit was increasing alarmingly.

Questioning the timing, however, he said the government could have taken the decision a bit later. “The timing might have been different as all the macro economic indicators are worsening.”

Added IDBI executive director S.K.V. Srinivasan: “Certainly, the diesel price hike will push up inflation in the short term as most of the costs and also raw material prices will shoot up.”

“Due to this, overall demand will come down,” he said. How this would affect the growth of the economy was uncertain,” he said.

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