New Delhi: 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
"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
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
Rangarajan said without hiking petroleum prices and duties it
would not be possible to meet the fiscal deficit target of 4.6
The government aims to reduce fiscal deficit to 4.6 percent in
2011-12 from 4.7 percent in the previous year.