India:Domestic fuel prices to go up by 9%: Ficci

economictimes.indiatimes.com PTI[ TUESDAY, MARCH 18, 2003 02:14:13 PM ]

NEW DELHI: A nine per cent increase in the domestic oil prices has been projected in the event of a war in Iraq and the Rs 8,116 crore oil subsidy budgeted for 2003-04 was not adequate enough to bridge the gap, an apex chamber has warned.

"The budgeted oil subsidy of Rs 8,116 crore in 2003-04 is inadequate to fully provide for the increase in the oil prices and a hike of nine per cent in domestic oil price is needed to cover the shortfall," Ficci President A C Muthiah said here last night.

In an interactive session with Forum of Financial Writers on 'Budget and Economic Reforms', he postulated two possible scenarios in the event of war in Iraq, saying the first one would be that war "will be quick and swift, ending in a matter of few days and resulting in moderate increase in the oil prices."

The reasoning for the short war, in Ficci's assessment, he said was that it was due to the vast difference in the military capabilities of the two countries (US and Iraq).

The other possibility of a prolonged war of over three months, which according to him was not a possibility, could push up the average oil prices to around $40 a barrel, thus making a "major negative impact on the Indian economy, especially industry."

The chamber also saw more business potential in Iraq even amidst human sorrows that could accompany after the war with possibility of reconstruction activities.

"What is seen as aftermath of the war is that I see a lot of scope for Indian steel, cement and construction industries and we must get prepared and be ready there," Muthiah said.

Even the Indian engineering industries would have large potential in Iraq, Muthiah said, adding there would be large-scale outsourcing.

Meanwhile, Ficci secretary general Amit Mitra equated the potential that would emerge from Iraq to a situation during the Second World War when the war stimulated demand in the economy internationally, especially in India after the Marshall Plan.

In the present case, Mitra, however, warned "this war does not have the inner dynamics of a large widespread demand pull effect."

However, he found a silverlining amidst the rising oil prices, saying the prices were bound to settle in the range of $23-25 per barrel as had happened during the previous Iraq war.

"Going by the past experience, one can say that increase in oil prices in the recent past, again fuelled by uncertainty, is to a large extent a reflection of the market discounting the war hysteria and assigning a war premium to the oil prices," Mitra said.

The other factors that had exacerbated the situation, according to Mitra, included continuing strike of oil workers in Venezuela and the less than favourable stance adopted by the Oil Producing and Exporting Countries (Opec).

Mitra also warned that even during the short war, the inflation, based on Wholesale Price Index, could go up by 4.5 per cent in 2003-04 as compared to the 3.6 per cent increase in 2002-03.