Planning commission deputy chairman Montek Singh Ahluwalia has strongly supported the hike in diesel prices and said the government needed to take a lot of tough decisions such as this to achieve an 8.2 percent growth rate during the 12th five-year plan.

“Raising fuel prices is always a problem. But the real question is could the government afford not to? My view is: No. Several committees looked into it and held that the general purpose fuel (which is what diesel is) should not be subsidized and that the targeted subsidy is okay (which is reflected in capping the number of subsidized LPG cylinders to six),” he said talking to reporters here today.

He said no hike would have meant one of the two consequences: a higher deficit, which would mean a cut in plan expenditure or bankruptcy of the petroleum sector. “The planning commission view is that both petrol and diesel should be completely de-regulated, which is not the case now, and this should be done step by step.”

Hike in diesel prices, Singh said, created a substantial fiscal space which could otherwise have been done either by taxation or slashing plan expenditure and hoped that the rating agencies would take note of it. “There was a perception that no matter what diesel price will not be hiked. That will change,” he added.

As for fixing the growth target for 12th plan, Singh said even 8.2 percent was an “extremely ambitious one” and could be achieved only if some tough decisions were taken. He didn’t elaborate what other steps needed to be taken though.

The plan panel had fixed a 9 percent growth target for the 11th plan period. Though it ended at 7.9 percent, with growth sliding down to 5.5 percent in the last quarter, Singh was happy with the achievement. He said Indian economy weathered two global crises and ranked second only to China in terms of growth. The record on inclusion was also good with data showing a rapid decline in poverty and marked improvement in agriculture growth and consumption in rural areas.

The full planning commission will meet tomorrow to finalise the 12th plan after which it will be taken up by the National Development Council (NDC) sometime next month for final approval.