ET quoted Mr C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, as saying that the government will hike diesel prices once there is a substantial easing in inflationary pressure.
He added that "Diesel price adjustment is becoming necessary in order to contain fiscal deficit and losses of oil marketing companies."
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% in September 2011.
He said that food inflation rose sharply to cross double digit levels at 10.6% for the week ended October 8th 2011 as against 9.32% in the previous week. He added that "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. 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."
Petroleum minister Mr S Jaipal Reddy said that state run oil marketing companies are likely to bear under recoveries of INR 121,571 crore during the current financial year if average price of the Indian basket of crude oil remained at USD 110 per barrel.
The government recently increased diesel prices by INR 3 per liter, kerosene by INR 2 per liter and domestic LPG by INR 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.
Mr 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% in 2011-12 from 4.7% in the previous year.
(Sourced from ET)
