Diesel for irrigation may be subsidised

The government is considering subsidising diesel prices to facilitate irrigation after it hiked diesel and kerosene prices by Tk 3 to Tk 23 a litre from midnight Wednesday.

"We will ask the Department of Agriculture Extension to identify and make a list of the country's deep tube-wells used for irrigation," Finance Minister M Saifur Rahman yesterday told The Daily Star after a meeting at the Planning Commission.

"Once this list is prepared, we will issue cards for the farmers so that they get the subsidy," he added. Farmers presently get 25 percent subsidy for electricity-driven pumps. We can do the same for diesel-run ones."

On concerns of economists that the price hike of diesel and kerosene will hurt the poor and push up the inflation, Saifur said, "I have thought about these concerns beforehand and I have thought about subsidy."

"We have subsidised electricity prices, but giving subsidy to diesel prices for irrigation is a difficult issue. Diesel is used in shallow boats, transport1 and other machines and we don't want to subsidise those. We want to give it to farmers," Saifur maintained.

About 83 percent of the country's irrigation are powered by diesel and the rest by electricity.

Rural people consume 30 percent of the diesel and most of the kerosene. Both these products are used largely in the agriculture and transport sectors, and constitute a major cost factor in food production and transportation.

Bangladesh is already facing a high inflation rate of nearly 8 percent. Economists fear the hike in diesel and kerosene prices will further fuel the inflation rate. They argue that the government had other options to avoid the price hike.

The government argues that when diesel and kerosene sell at Tk 20 a litre in Bangladesh, they sell at Tk 34 in India, which is why they are smuggled out of the country in significant amount -- a point the government makes every time it hikes the prices.

Now with both fuel oils selling at Tk 23 a litre in Bangladesh, the price difference still remains significant.

Diesel and kerosene account for over 90 percent of the petroleum products consumed in Bangladesh, making it easy for the government to generate huge revenues by slightly hiking their prices.

The government controls the prices and imports of petroleum products through Bangladesh Petroleum Corporation that is set to incur a loss of Tk 2,200 crore. It pays the government more than Tk 3,500 crore as import duties yearly.