New Delhi, Nov 4: On a day the government was battling the political fall out of petrol price hike, its economic advisor pitched for a bold decision on freeing diesel prices, which he claims would eventually cool down inflation.
“I personally believe that we should decontrol diesel prices, which will take some pressure off the fiscal burden. And in the long run, it will cause inflation to go down,” Chief Economic Advisor Kaushik Basu told PTI in an interview. Inflation should ideally be below five per cent, he said.
“However, (it is) important to explain to our people that if we subsidise diesel artificially, by running up a large fiscal deficit, that would also exert an upward pressure on prices,” Basu said.
In September, headline inflation was measured at 9.72 per cent and food inflation has risen to 9-month high of 12.21 per cent for the week ended Oct 22.
While petrol prices are market-linked, the government administers the prices of LPG, kerosene and diesel backed by heavy subsidies.
Only yesterday oil marketing companies increased petrol prices by Rs 1.80 per litre. Finance Minister Pranab Mukherjee has acknowledged that the hike in petrol prices will have some impact on inflation.
Both Congress' allies and Opposition parties have slammed the price hike and have sought its roll back.
Petroleum Minister S Jaipal Reddy has sought a meeting of the Empowered Group of Ministers (EGOM) to devise ways to cut the mounting losses to oil marketing companies due to the pricing of diesel, domestic LPG and kerosene as oil companies. Prices of the cooking fuel and diesel were last revised in June.
Basu, who also heads a Prime Minister-appointed panel on inflation, said deregulating diesel prices will make India a more responsible country environmentally, because then “we will not encourage over-consumption of diesel vis-à-vis other more environment-friendly energy substitutes”.
On inflation, he said bringing it down is a priority. “I would like Indian inflation to be kept firmly below 5 per cent. In fact, I would like a target of 4 per cent. That gives you flexibility for relative price adjustment and also purchasing power parity adjustment, which is natural during high growth,” he said.
The CEA, however, admitted that India won't be able to bring down inflation to the target of 5 per cent by the end of the fiscal.
“But if we can reach 5 per cent or less sometime toward the end of the next calendar (2012), that would be good,” he added.
The Reserve Bank has hiked interest rates 13 times since March, 2010, in its bid to tame inflation, a cause of big concern for the government.
The central bank expects inflation to moderate to 7 per cent at March-end and Basu agrees with the forecast.
