New Delhi, Oct 20 (IANS): The government will hike diesel prices once there is a substantial easing in inflationary pressure, the prime minister's top economic adviser C. Rangarajan said Thursday.
"Diesel price adjustment is becoming necessary in order to contain fiscal deficit and losses of oil marketing companies," Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said at the Economic Editors conference here.
He said hiking the price of diesel in the current situation would further worsen inflationary pressure.
Inflation has remained stubbornly high, near double-digit, since January 2010. The headline inflation based on the wholesale price index was recorded at 9.72 percent in September, according to the latest official data.
Food inflation rose sharply to cross double-digit levels at 10.6 percent for the week ended Oct 8 as against 9.32 percent in the previous week.
"There are two options, one is to deregulate the price of diesel and the other is to raise the price of diesel. The action will depend on how inflation behaves," he said.
"If inflation is behaving in a manner that is definite and sharp decline, then deregulation can be done otherwise price hike can be done as an alternate," Rangarajan, a former governor of the Reserve Bank of India, said.
Petroleum Minister S. Jaipal Reddy said Wednesday that state-run oil marketing companies (OMCs) are likely to bear under-recoveries of Rs.121,571 crore during the current financial year if average price of the Indian basket of crude oil remained at $110 per barrel.
The government recently increased diesel prices by Rs.3 per litre, kerosene by Rs.2 per litre and domestic LPG by Rs.50 per cylinder.
However, due to high prices of crude oil in international market, losses of oil marketing companies continue to mount.
To ease the burden of price hike on the common man, the government has removed five percent custom duty on petroleum products and reduced excise duty on diesel. This will strain the fiscal situation.
Rangarajan said without hiking petroleum prices and duties it would not be possible to meet the fiscal deficit target of 4.6 percent.
The government aims to reduce fiscal deficit to 4.6 percent in 2011-12 from 4.7 percent in the previous year.