Fuel prices were hiked last week, not unexpected given the need to maintain the budget deficit at targeted levels (so that further borrowings can be made). What was shocking was the size of the increase; kerosene by Rs.35 (up by 49%) and diesel by Rs.31 (up by 37%).
According to the Central Bank Annual report (see page 63), the country's fuel consumption in 2010 was as follows:
Petrol 90 octane 595,000
Petrol 95 octane 22,000
Auto diesel 1,699,000
Super diesel 12,000
Converting this into litres (at approximate specific densities of 0.74 for petrol, 0.95 for diesel and 0.82 for kerosene) and multiplying the results by the amount of the price increase the CPC will raise Rs.72bn, assuming that fuel consumption remains at the above level.
This is a lot of money, by any standard. The Government revenue (excluding grants) in 2011 was Rs.963bn. The 2011 revenue deficit was about Rs.95bn, this was to be reduced to virtually zero (just Rs.1.8bn) in 2012. The price increase in fuel (72bn) will plug most of the gap, provided of course that expenditure is in line with budget.(Have a look at this link for a few more details on 2011 and 2012 figures).
Could the Government have plugged the gap in some other way?
If expenditure were cut, then there would be no need to raise prices. Where there is waste, inefficiency and corruption it should be relatively easy to cut costs, with no loss of services. Close down or sell off loss-making enterprises and improve the efficiency of others. The COPE reports highlights enough problems with public enterprises, its time to start dealing with them, or face the prospect of still higher taxes, to pay for more waste.