Prime Minister Manmohan Singh said Friday a Rs.17 per litre hike in diesel price was needed to cover the losses and that the government only partially passed on the burden to the common people.
"We raised the price of diesel by just Rs.5 per litre instead of the Rs.17 that was needed to cut all losses on diesel," the prime minister said in an address to the nation.
The prime minister pointed out that much of diesel is used by big cars and sports utility vehicles (SUVs) owned by the rich and by factories and businesses.
"Should the government run large fiscal deficits to subsidise them," he asked.
The prime minister said taxes on petrol were reduced by Rs.5 per litre to prevent a rise in petrol prices.
"We did this so that the crores of middle class people who drive scooters and motorcycles are not hit further."
On the decision to put a cap of 6 subsidised cylinders per year, Singh said, "Almost half of our people, who need our help the most, actually use only 6 cylinders or less. We have ensured they are not affected."
"We did not touch the price of kerosene which is consumed by the poor," he said.
He said despite the recent increase, diesel and cooking gas prices were lower in India than neighbouring countries like Pakistan, Sri Lanka, Bangladesh and Nepal.
"The total subsidy on petroleum products will still be Rs.160 thousand crore. This is more than what we spend on health and education together. We held back from raising prices further because I hoped that oil prices would decline," he said.
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