Rangarajan pitches for decontrol of diesel prices

The Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan today favoured decontrolling of diesel prices, saying retail petroleum prices must reflect the international crude prices.

"I think it should happen. Because retail prices of petroleum products in India must reflect international crude oil prices..Therefore, at some convenient point we should really start the process of deregulation of diesel prices also," he told reporters on the sidelines of a function.
He said time to time, prices of petroleum products had been increased in large steps, and therefore, "I would advocate deregulation of diesel prices".
Early this week, Finance Minister Pranab Mukherjee admitted the government's proposal to free prices of diesel and cooking gas. "Petrol we have done (decontrolled). Diesel, kerosene and LPG we want to do it. (But) Kerosene we may have to provide some subsidy because people who have no access to electricity, use kerosene for lighting," he had said.
While the prices of petrol are linked to market rates, the government directly and indirectly compensates the oil marketing companies for losses on account of sale of diesel, kerosene and LPG through subsidies and oil bonds.
In June last year, the government decided to deregulate the petrol prices owing to steep increase in international crude oil prices and the oil marketing companies facing severe pressure owing to increasing under recoveries.
Rangarajan, here to deliver an oration on "Economic Growth and Inflation" at the Platinum Jubilee celebrations of Indian Overseas Bank, said a strong and balanced growth would enable the country's economy to achieve multiple goals, including lower inflation.
"Over the medium and long-terms, increasing the availability of goods and services with the increase in demand will keep the inflation low. However, in the short-term because of temporary aberrations inflation raises its head, the dominant concern of the policy makers must be to contain and tame the inflation," he said.
Asked about the index of industrial production numbers which predicted a slower growth rate in the first quarter of this year, the noted economist hoped it would pick up later this year. "We expect it will pickup in the second half and expect it to reach 7.5%", he said.
The index of industrial production growth decelerated to 5.6% in May as compared to 5.8% in April 2011.
To a query on whether the Reserve Bank may continue to hike the lending rates, Rangarajan said "Well it all depends upon the behaviour of inflation. If that does not come down, then the present policy (by RBI) will continue," he said.
Rangarajan also suggested that there had to be an increase in the capacity addition in power sector considering the growing demand.
"Yes I think the growth rate of China will moderate in the next decade and it would be equal to that of India. Power sector is crucial to the growth of economy and it is necessary to keep adding the capacity," he said.