Government's less than half hearted measures

Govt raised prices of petroleum products but the raise is clearly insufficient. Total deficit is now at Rs. 245,000 crores (and every dollar increase in oil prices increases it by USD 700 mn--at current exchange rate).

Price rise will reduce deficit by Rs.22,000 crores and duty reduction will reduce deficit by Rs. 22,000 crores both totalling Rs. 45,000 crores. We still have a gap of Rs. 200,000 crores.

This is proposed to met by oil bonds (banking system)-- Rs. 95,000 crores and upstream companies ---Rs. 45,000 crores, a total of Rs. 140,000 crores. This leaves a gap of Rs. 60,000 crores for which no provision is made.

Money is not going to come from thin air and this gap may have been left in the hope that oil prices will come down and the actual deficit will be lower. It is disastrous to manage economic affairs on hope.

And in any case, what the government is saying is that Rs. 200,000 crores has to be met by oil companies and banking system. Question is whether these sectors have such financial resources and what happens to the long term economic health of these institutions?

And what shall be do in 2009-10? Where is the money going to come from? Remember in 2007-8, oil companies and banking systems have already funded Rs. 70,000 crores.