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Subsidies moderate price joy

New Delhi, Nov. 8: Inflation fell to 2.97 per cent for the week ended October 27, dropping below 3 per cent for the first time in five years.

Lower prices of food items and some manufactured products were behind the fall in inflation, which was at its lowest since it touched 2.86 per cent on July 20, 2002.

However, there was little cause for cheer as the recent flare-up in crude will stoke the price fire, which can only be doused by more subsidies.

With assembly polls in Gujarat and Himachal Pradesh round the corner, the government is not inclined towards raising fuel prices, but the higher subsidies that the move entails will be at the expense of lower government expenditure on social welfare.

At a meeting to clear the Eleventh Plan today, Prime Minister Manmohan Singh said policy-makers needed to factor in the trade-off between inflation and subsidy.

“We need to address the problem of mounting subsidy in food, fertilisers and now in petroleum, which is a recent phenomenon. Over Rs 100,000 crore will be spent on these three items,” he said.

Top officials said the government was unwilling to pass on the crude price surge to consumers in the form of higher fuel prices. In the process “we will run up an annual petro-product subsidy bill of over Rs 50,000 crore”.

Though the budget has allotted about Rs 54,000 crore for subsidies, they are not only for oil but also for food and fertilisers. Subsidies will, therefore, go up and the Prime Minister says there will be now “fewer schools, fewer hospitals, fewer scholarships, lower public investment in agriculture and poor infrastructure.”

The officials said the government may not be able to accommodate the full extent of the crude surge by subsidies. It may raise prices but only partially. Even then, sources said, a rise would be dictated by political considerations. The Planning Commission wants a rise in oil prices. “Our view is that energy costs should be passed on to consumers,” said plan panel deputy chairman Montek Singh Ahluwalia.

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