New Delhi: The economic scenario turned more gloomy on Tuesday with the rupee tumbling to a fresh low and breaching 66 vs the US dollar. The markets crashed too with the Sensex falling over 600 points during the intraday trade and finally closed 590.05 points down.
Crude oil prices also crossed $ 110 per barrel while gold futures touched a record high of Rs 32,500. While these prices have gone up, more price hikes are set to hit the common man soon.
A steep hike in diesel price is likely after the end of the monsoon session of Parliament. Sources in the Ministry of Petroleum and Natural Gas said that there is a need to hike the diesel price by at least Rs 5 per litre. The ministry feels that a Rs 3 per litre diesel price hike is meaningless when under-recoveries are over Rs 10 per litre.
According to sources, the Ministry of Petroleum and Natural Gas is planning to approach the Union Cabinet with various permutations and combinations on price hike. The Finance Ministry is reported to be keen on one time diesel price hike to contain the current account deficit.
However, no decision has been taken as yet on the oil marketing companies recommendations to hike diesel prices by more than 40 to 50 paise per month.
Railways on the other hand is likely to take a decision on further hike in freight tariff in October when it will review the fuel adjustment component (FAC) in the wake of rising energy cost but passenger fares will not be touched. "Tariff has already been increased. As per the proposal of the budget, it will be hiked again in October," said Minister of State for Railways Adhir Ranjan Chowdhury on the sidelines of a conference in New Delhi.
Railways had earlier hiked the freight rate by 5.7 per cent in April while linking the fuel adjustment component (FAC) with goods tariff. FAC is linked with fuel and energy prices and calculated accordingly. Asked whether passenger fares will also be considered for further hike, Chowdhury replied in the negative. "No it will be freight only," he said.
"The FAC is proposed in the budget. It is a budget proposal that tariff will be examined taking the fuel cost in mind after every six months," Minister said. However, he said, "It will be in a dynamic way. If the global oil price will decrease then freight traiff will also decrease," and added "the rupee value...current scenario is volatile. It is a concern for all of us."
Meanwhile, Finance Minister P Chidambaram admitted that the decisions taken by the government to counter the 2008 economic meltdown are among the reasons why the rupee depreciated. Chidambaram said the stimulus programme announced by the government in 2008 led to both fiscal and current account deficit.
"One of the domestic factors is that we've allowed the fiscal deficit to be breached and we allowed the current account deficit to swell because of certain decisions we took during the period 2009 to 11. It brought is us growth, it stabilised the economy but it cost us in terms of the fiscal deficit and the current account deficit," Chidambaram said. "We hope to be patient and rupee will find its appropriate level," he said.
Chidambaram, however, said that the Food Security Bill will not upset the government's finances. He said that a provision has already been made for payouts on the bill and it will not raise the fiscal deficit.
"Fiscal deficit will not go beyond 4.8 per cent of GDP," he said. Chidambaram said that the next agenda of the UPA government after the Food Bill is the Land Acquisition Bill. The bill seeks to provide cheap foodgrain to 82 crore people in the country and is the biggest programme in the world to fight hunger.
(With additional information from PTI)